In With the New, IFRS, Out With the Old, GAAP

In With the New, IFRS, Out With the Old, GAAP

Recently, in the past couple of years Globalization has forced the business community in the United States to reassess how international corporations and domestic corporations are preparing and comparing the company's financial statements. Due to this new developing problem, the US is determining whether or not to integrate the IFRS in with GAAP. The expectation is to make financial statements more consistent between international corporations taking into consideration most of the globe already adheres to IFRS. This paper will discuss the pros and cons of integrating the two in the US and what this significant change will entail for accountants in the US. Theses pros and cons emerge from the differences found in IFRS and GAAP.

One of these differences is LIFO. While GAAP allows companies to use LIFO as an inventory method, IFRS does not allow this. IFRS is "principle based" whereas GAAP is rule based and has more specific requirements (Rudolf and Marks). There will also be a difference in the financial closing process since IFRS uses different procedures and has different policies. IFRS also requires more qualitative and quantitative disclosures than GAAP does on financial statements (Wright and Hobbs 19). Some of these differences will lead to advantages for accountants and companies if IFRS is adopted.

A pro to this merger would be that complexities that develop from financial reporting could be reduced since IFRS does not encompass the same wide-ranging rules like the GAAP (Wright and Hobbs 18). IFRS standard for reporting and measuring an impairment loss is a single-step process, whereas the GAAP has more stringent rules for analyzing and reporting that loss (Rudolf and Marks). For example, if a company invests in a piece of machinery and in a year the value goes down, they must report that as a loss and if it goes back up in value they must keep it as a loss and do not gain the value back under GAAP. If the same situation were to occur under IFRS, the company could report the gain in value once again. If an impact on a company's stock price is a concern to these organizations, they should look to European countries that have also adopted the IFRS and saw no significant impact on their market ratings (Wright and Hobbs 24). More job opportunities will arise from integrating the IFRS since companies will have to bring in outside accountants who are educated in IFRS to teach their employees. US accountants who do learn IFRS will have the option of working in different countries since they are now familiarized with IFRS (Pounder 41). IFRS has certain advantages when compared to GAAP; however, these could end up becoming a disadvantage and a hindrance upon the accountants and the companies.

Preparation of financial statements will take accountants longer due to a need for additional footnotes and disclosures in the statements. There are fewer rules under IFRS and accountants will have to use their own judgments or assumptions when preparing financial statements, so they will have to explain their reasoning more (Wright and Hobbs 18). Since accountants are required to use judgment over following a set of rules when preparing financial statements under IFRS, people may feel as though they may be able to get away with cutting corners when preparing financial statements. Another disadvantage for the companies is that they will end up spending more money if IFRS is integrated since they do have to hire outside accountants to train their employees on the new standards (Wright and Hobbs 22). It will be expensive since all companies will have to train their employees. The longer that takes, the more costly it will be for the companies and they may also experience a loss due to the time it will take for their employees to complete this training since they will not be able to prepare financial statements until they learn IFRS.

In conclusion, I feel as though after discussing the different advantages and disadvantages of converging with IFRS it would be in the best interest of the United States to also adopt IFRS. Considering more than 100 countries around the globe all follow the same standardized principles it would be an advantage for the United States to also follow these standards. With this change it will give the accountants in the United States many more job opportunities and allow them to possibly further their careers in several different countries around the world. Although it will take some further training in the field and they will have to put in some extra hours learning these new standards in the long run it will be worth the work.

References:

Steven Hobbs, Christoper Wright."Impact and Implications of IFRS Conversion or Convergence".Bank Accounting & Finance.Business Source Premier.Volume 23,Issue 4(2010),pp.17-24.

Pounder,Bruce. "How Globalization is Affecting U.S. Accountants".Strategic Finance.Business Source Premier.January 2007,pp.41-45.

Marks, Jonathan and Hans-Peter Rudolf. "United States:Bridging the GAAP to IFRS".Mondaq.11 Jan. 2009.http://www.mondaq.com/unitedstates/article.asp?articleid=72224

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