REPORT TO IFRS

 

 

REPORT TO IFRS

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Executive Summary

This research demonstrates possible avenues that lead to the United States convergence to International Financial Reporting Standards. It also discusses the compatibility of International Financial Reporting Standards with the present United State’s regulatory and legal environment, and the possible effects of this convergence to the rest of the country’s economy as a whole. This study thus aims at providing the effects that may occur due to United States convergence to the International Financial Reporting Standards concerning worldwide competition among accounting standards and the standard providers. The research discuses Australia’s convergence to International Financial Reporting Standards and the general obstacles and implications that the United States will face by converging to these standards particularly in reporting entities to jurisdiction.

 

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

Abstract ……………………………………………………………………………..………….1

Relevant information about United State’s convergence to International Financial Reporting Standards (IFRSs) ………………………………………………..……………………….…….3

Introduction    …………………………………….…………………………….3

Background Information ………………………………………………………..3

Relationship between SEC, FASB and IASB……………………………………………………4

Obstacles to the United States` adoption of IFRS …………………………………..………….5

Implications of the United State’s convergence to IFRS particularly for reporting entities in other jurisdictions ………………………………………………………………..……………………6

 

 

 

 

 

 

 

 

 

 

 

 

Relevant information about United State’s convergence to International Financial Reporting Standards (IFRSs)

Introduction

Convergence to the International Financial Reporting Standards (IFRSs) is defined as the working or coming together of the accounting standard board of the country applying International Financial Reporting Standards with international accounting standard board (IASB) to establish high quality compatible accounting standards over time (Selling, 2011). This means that countries that choose to converge with International Financial Reporting Standards may deviate to a certain degree from the IFRSs as issued by the international accounting standards board. Currently, it has been noted that the use of International Financial Reporting Standards is increasingly spreading worldwide such that it has already covered over a hundred countries including the European Union, Australia, and South Africa among other countries (Needles, 2010). International Financial Reporting Standards have become the major requirement since many countries are aggressively growing and globalizing their businesses.

Background Information

Previously, organizations issued their financial statements based on the accounting standards of the country in which they are headquartered. However, with the development of the global economy, a good number of organizations developed a powerful strength in order to achieve a uniform nature in their financial reporting. International Financial Reporting Standards are the main standards in accounting that are regulated by the international accounting standards board based in London (Robert, 2006). Through the financial reporting council of Australia, there was a decision made to enable the nation to adopt or converge to the International Financial Reporting Standards in the year 2002. However, research shows that the development of accounting standards applied in Australia is not directly under the control Australia any more except to the extent that a standard relates to domestic issues without any equivalence to the international financial standards. Therefore, since 2002, the Australia accounting standard board tried to implement strategic ways from the financial reporting council to converge to International Financial Reporting Standards under the regulation by international accounting standards board (Abbas, 2006). Australia’s implementation of the International Financial Reporting Standards was put in place in 2005 with the deletion of some number of options from the IFRS (International Accountings Standards Board, 2007).

Relationship between the United States` Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB), and the International Accounting Standards Board (IASB)

The United States Securities and Exchange Commission and International Accounting Standards Board came to an agreement to work towards doing away with the differences between the generally accepted accounting practices (GAAP) in United States and the International Financial Reporting Standards (Epstein, 2011). The result of the agreement was a set of International Financial Reporting Standards to replace the GAAP of the country. This thus led to other countries amending the national accounting standards by making them compliant to the relevant International Financial Reporting Standards.

Currently, the Financial Accounting Standards Board and the International Accounting Board have committed themselves to working vigorously in order to achieve compatibility of the United States’ generally accepted accounting standards and the International Financial Reporting Standards. The Securities and Exchange Commission takes the role of mandating the United States companies to comply with the International Financial Reporting Standards as issued by the International Accounting Standards Board as of a particular date (Pounder, 2009). Thus, the International Accounting Standards Board is the principal provider of standards for United States public organizations and other countries. Therefore, the relationship between these regulatory bodies in accounting standards is that of ensuring that the United States and other countries including Australia converge to International Financial Reporting Standards in order to achieve a particular goal of convergence towards a set of high quality international account and financial reporting (United States law Institute, 2009).

Obstacles to the United States’ adoption of IFRS

The United States feels that its representation at an international level is of great concern. This is because the International Accounting Standards Board is an independent body by design thus not aligned to any sovereign state. Therefore, the United States’ strength and influences at the Financial Accounting Standard Board and its constituents will be diluted at the International Accounting Standards Board. According to Mowen (2011), the International Accountings Standards Board has been criticized for its ignorance to some concerns. This implies that a board with international constituents is supposed to weigh as many views as possible in order to carry the responsibility of adopting high quality solutions for all.

Another obstacle to the United States adoption of the International Financial Reporting Standards includes the pride and politics of the United States. This means that the United States is scared of losing the power to create standards for the domestic market. This is because the majority will not accept the suggestion of eliminating the United States’ generally accepted accounting standards that have been in use for a long period (Ulric, 2011). The conversion to International Financial Reporting Standards is costly in various ways including analysing and making adjustments to historical financial statements, changing or converting the already available reporting systems to accommodate the international financial reporting standard framework. In addition, the adoption will require proper education or training of the developers and the users of the organization’s financial information as it is a new program being applied. Thus, to succeed, training and education on the new accounting standards is very necessary and important.

Implications of the United State’s convergence to IFRS particularly for reporting entities in other jurisdictions

With the United States accepting convergence to International Financial Reporting Standards and reporting entities in other jurisdictions, a common and uniformity in accounting and financial reporting language that is used consistently and rigorously in the whole world will be implied (Sidney, 2006). Uniformity in accounting and financial reporting leads to increase in comparability for analysis purposes in investment. Furthermore, it implies a reduction in the general capital cost hence efficiency in the allocation of capital on international or global basis. The convergence to IFRS implies an increase in the competitiveness of the United States organizations and capital markets through the reduction of obstacles. Lastly, the convergence process implies a general reduction in complexity and risk of errors in accounting. Therefore, the United States will encounter the above mentioned implications through its convergence to the International Financial Reporting Standards particularly for reporting entities in other jurisdictions (Shahrock, 2009).

 

References

Abbas, M. (2006).Wiley IFRS: International Financial Reporting Standards: workbook and guide. Chicago, CA: John Wiley and Sons.

Epstein, B. (2011). The Economic Effects of IFRS adoption. All business News. Retrieved From: http://www.allbusiness.com/trends-events/investigations/11820084-1.html

International Accountings Standards Board. (2007). A guide through International Financial Reporting Standards (IFRSs) 2007: including the full text of the Standards and Interpretations and accompanying documents issued by the International Accounting Standards Board. New York, NY: Kluwer.

Mowen, M. (2011). Cornerstones of Managerial Accounting. New York, NY: Cengage Learning.

Needles, B. (2010). International Financial Reporting Standards: An Introduction.
Michigan, MA: Cengage Learning.

Pounder, B. (2009). Convergence Guidebook for Corporate Financial Reporting. Los Angeles, CA: John Wiley and Sons, 2009

Robert, W. (2006). Financial accounting: information for decisions. New York, NY: Cengage Learning.

Selling, T. (2011). Top ten reasons why US adoption of IFRS is a terrible idea. New York, NY: Cengage Learning. Retrieved From: http://accountingonion.typepad.com/theaccountingonion/2008/09/top-ten-reasons.html

Shahrock, M. (2009). International Accounting: A User Perspective. Boston, MA: CCH Publishers.

Sidney, G. (2006). International accounting and multinational enterprises. New York, NY: John Wiley & Sons.

Ulric, J. (2011). Accounting Information Systems. Michigan, MA: Cengage Learning.

United States law Institute. (2009).The SEC speaks: Corporate law and practice course handbook series. Harvard: Law Institute press.

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