subject: Convergence or Conversion, How the GAAP to IFRS Conversion Will Affect You [print this page] Convergence or Conversion, How the GAAP to IFRS Conversion Will Affect You
Shane Braxton
ACC 303
Fall 2010
Professor Richard Barndt
Convergence or Conversion, How the GAAP toIFRS ConversionWill Affect You
To adopt IFRS or not to adopt IFRS, that is the question. This question is being asked again and again all over our country. Our industry leaders have been tasked with the decision to either abolish the hard work their previous colleagues have done in order to make GAAP, or to ignore the sanctions from the IASB to make the U.S. become part of their standards. In a perfect world the two would have worked together at the start and ironed out these issues together, however this is not the case and now we must work even harder to figure out what to do. To start at the beginning, there are several directions these new standards can go. It can be explained in a two sided spectrum, on the extreme left we can destroy GAAP and adopt IFRS without any adjustments. On the extreme right, we can continue with GAAP and ignore the pressures of the international community to change our standards. Of course, there is also a median where equal parts are taken and a new set of standards are created. It is somewhere on this spectrum that the FASB will fall, wherever that point is, the accounting industry will still have to adjust.
If the FASB were to chose a point on the left end of the spectrum there would be many changes that would have to get ironed out. The FASB has already announced that they plan to take this course and have called it convergence. Since 2002, the FASB and the IASB have taken many steps in the process of convergence and have held many meetings. In these meetings they identify and explain the differences in the GAAP and IFRS where they try and find a common ground and make a new set of standards. For example, the currently debated issues are pertaining to Fair Value Measurement, Leases and Insurance Contracts. The FASB and the IASB have come up with a timeline that projects future meetings on topics to be discussed; this document is called the FASB Technical Plan and Project Updates. Being a professional in this industry or one closely involved, one must take time and become knowledgeable in this area. It has been shown that this is the interest of the FASB, we are moving closer to the left side of the spectrum.
Now, what might happen if the FASB choose to simply ignore the IASB's pressures and to continue as it has previous to 2002? What would happen if the international community continued to have its standards and the U.S. had its own standards? For this answer all one must do is look to the past. In the years previous to 2002 the accounting industry acted as much as it does today. If one wanted to compare a set of financial documents based in the U.S. and one of that of international origin, the accountant would have to convert one of the documents. If the FASB wanted to be on the right side of this spectrum, then a general conversion sheet could be made. Instead of changing our standards to international standards, the FASB could come up with a complete conversion sheet. When used with a financial report using IFRS, one can use the sheet to get a general idea of where the company is according to GAAP. There are many things that would be hard to convert, but this would save a lot of the meetings and time involved with changing GAAP.
With both sides of this spectrum being laid out, it is up to our industry leaders and the brilliant men and women that sit on the FASB to determine where we are headed. The next several years will be difficult, but in the end there will be a way that accountants and others will be able to read and understand international financial statements much as the same way that we read domestic ones today. This can either involve our standards changing, or devising a way to convert and read international documents with more ease. In either way, left or right side, it is up to the professionals and like minded individuals to become educated in these areas. I can be said that as a CPA, or a private accountant, we must all understand these differences so we can continue our careers in the same distinct professionalism and respect that is has been for many, many years.
