Issues with International Accounting

Issues with International Accounting

Issues with International Accounting

Over the past few years many countries around the world have replaced their own national standards with the international standards. All European countries today have adopted the International Financial Reporting Standards forcing companies to switch over to the international standards. There are many issues in today's business environment related to international standards. Some of these issues that have recently emerged are due to the increase in global competition, international trade, and companies conducting business overseas. In the U.S, companies use GAAP when creating financial statements but it could change in the near future if they decide to adopt IFRS. There are many differences when comparing IFRS to GAAP because IFRS is a lot less detailed when it comes to reporting.

Businesses and investors today are conducting business on a global level and this has led many countries to adopt the international accounting standards. Today there are more than 110 countries who have adopted IFRS. Some of the reasons why these countries have turned to the international accounting standards is because it gives investors better information concerning financial statements. Otherwise each country would have to try and interpret financial statements since each country has different standards and different ways of classifying assets and liabilities. Another reason for this is that it would cut down the cost of trying to prepare and interpret financial statements when dealing with non US companies.

IFRS has affected many companies here in the US mainly through business dealings with foreign countries. The Sec is trying to come up with a single set of global accounting standards so there isn't any conflict between IFRS and GAAP when companies here are doing business with non US companies. In 2011 the SEC will make a decision of whether or not to adopt IFRS in the US. Currently FASB and the IASB is coming up with new accounting standards that combine US GAAP and IFRS. These new accounting standards will have an impact on financial instruments, revenue, leasing, and financial statement presentations.

There are many differences when comparing IFRS to GAAP. One of the main differences is that GAAP is a lot more detailed when it comes to reporting and IFRS is a lot less detailed. An example of this is that GAAP's regulations are more than 17,000 pages long while IFRS is only about 5000. Most of the difference between these two standards results in different reported results. Another difference between the two standards is that IFRS does not permit LIFO and US GAAP does allow it. US GAAP uses a two step method when it comes to impairment write downs while IFRS uses a single step approach.

There are many problems concerning the exchange of financial reports between countries especially if it's a company who conducts business in an international setting. An example of where a problem may arise is when a manager has to manage operations in another country and try to interpret accounting information. Another issue could occur when an investor buys foreign equities based on that countries financial report.

There will be many benefits if the US decides to switch over to the international standards. One of the benefits will be that companies will be able to present their financial statements and compare them with other competitors from other countries. Companies won't have to worry about trying to interpret information from their subsidiaries that are in a different country. Another benefit would be that some of US GAAP is out of date and switching over to IFRS would be a big help when it comes to reporting. There would also be an easier movement for accountants to travel to other countries without having to worry about different accounting standards but that is only if the other country has also adopted IFRS.

Over the past few years there has been an increase in the number of businesses and investors conducting business on a global scale. There are also many issues that have come up because of the fact that different countries have different accounting standards so it causes a problem when companies or investors are trying to interpret financial reports. Currently in the US the Securities and Exchange Commission is debating on whether it should switch over to IFRS or stay with GAAP. FASB and the IASB is currently developing a convergence plan where it combines accounting standards from both GAAP and IFRS. This convergence plan may lead the US to switch over to IFRS and therefore eliminating all these issues that have recently arised due to the difference of these two standards.

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