Preview

Advantages and Disadvantages of Switching from U.S.Gaap to Ifrs

Best Essays
Open Document
Open Document
3327 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Advantages and Disadvantages of Switching from U.S.Gaap to Ifrs
Advantages and Disadvantages of switching from U.S.GAAP to IFRS
Nara Yoon
Charles Center Summer 2009

2 Advantages and Disadvantages of switching from U.S.GAAP to IFRS

In today’s business, markets are demanding increasing conformity. Many countries have converted to and implemented the International Accounting Standards Board (IASB)’s accounting standards. The United States, however, still maintains its own Financial Accounting Standards Board (FASB). Both IASB and FASB have created International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (U.S.GAAP) respectively. These accounting standards are rules of measurements for financial statements that companies issuing stock to the public must provide to stockholders (Libby, 21). There are various advantages and disadvantages of the U.S. companies changing their systems from U.S.GAAP to IFRS. As the markets have grown to become more complex and global, the disparities between the two standards have been a significant issue as consumers and producers call for reform. The current differences between U.S.GAAP and IFRS affect many aspects of business. There seems to be some future losses but the U.S. is continuing to move toward conversion. The primary benefits U.S. hopes to get are comparability, and thus, greater market liquidity and lower cost of capital. They also hope to see cost savings for multinational companies who keep record of several accounting standards. Most importantly, U.S. businesses wish to take advantage of the global accounting network. At a closer view, these assumed benefits are not nearly as influential as many people suggest. The first benefit of the conversion is comparability. Switching to IFRS would allow people to see various companies from different parts of world on the same plane. As willingness to trade increases, cross-border investment and integration of capital markets are easier with greater market liquidity and lower cost of capital (Hail,


Bibliography: Bloomberg, . "Accounting convergence with US is critical: EU." The Financial Express. 06 April 2009. The Financial Express, Web. 26 Sep 2009. . Bogoslaw, David. "Global Accounting Standards? Not So Fast." BusinessWeek: Investing. 13 Nov 2008. The McGraw-Hill Companies Inc., Web. 13 July 2009. . Borson, Joey. "IFRS Comment Period Closes; Respondents Divided Over Adoption Merits, Mechanisms." Finance and Strategy: Controllers ' Leadership Roundtable. Corporate Executive Board, Web. 16 July 2009. . businessfinancemag, . "PART II: IFRS or Standards Convergence?." Youtube.com. 21 April 2009. Youtube.com, Web. 18 July 2009. . Chasan, Emily. " Global accounting convergence plan seen on track." Reuters. 27 April 2009. Thomson Reuters, Web. 10 July 2009. . Chasan, Emily. "IFRS may lead to new U.S. accounting divide." Reuters. 24 Feb 2008. Thomson Reuters, Web. 15 July 2009. . Chasan, Emily. "Top six audit firms push for global IFRS adoption." Reuters. 15 Jan 2008. Thomson Reuters, Web. 16 July 2009. . Cashin, Jim. "Why you need to be thinking about IFRS today." Mass High Tech: The Journal of New England Technology. 24 July 2009. American City Business Journals, Inc., Web. 25 July 2009. . CNNMoney.com: Fortune. 12 March 2008. Cable News Network, A Time Warner Company. 12 March 2008. < http://money.cnn.com/> 7 Advantages and Disadvantages of switching from U.S.GAAP to IFRS Cox, Christopher. "U.S. Moves Toward International Accounting Rules." DealBook. 27 Aug 2008. The New York Times, Web. 11 July 2009. . CPAJ, . "The CPA Journal." Business Week. Nov 2008. BX, Web. 16 July 2009. . Deane, Jeffrey. "Private Sector Commentary: Ready for global financial standards?." post-gazette.com Business/Opinion. 22 March 2009. Pittsburgh Post-Gazette, Web. 07 July 2009. . De Jong, A., M. Rosellon, and P. Verwijmeren 2006, The Economic Consequences of IFRS: The Impact of IAS 32 on Preference Shares in the Netherlands, Accounting in Europe 3, 169185. Economist.com, . "Closing the GAAP: America embraces international accounting standards." Economist.com. 28 Aug 2008. Economist.com, Web. 17 July 2009. . Financial Accounting Standards Board. 12 March 2008. Financial Accounting Foundation. 12 March 2008. Hail, Luzi, Leuz, Christian and Wysocki, Peter D., Global Accounting Convergence and the Potential Adoption of IFRS by the United States: An Analysis of Economic and Policy Factors (February 25, 2009). Available at SSRN: http://ssrn.com/abstract=1357331 Hawrysh, Fred. "Thomson Reuters Adopts International Financial Reporting Standards (IFRS)." SmartBrief. 23 July 2009. Thomson Reuters, Web. 07 July 2009. . Henry, David. "Global Accounting Rules: Simpler, Yes. But Better?." BusinessWeek. 04 Sept 2008. BusinessWeek, Web. 18 July 2009. . Hughes, Jennifer. "Accountancy: Gone are the days of preparing for a one-country career." FT.com Financial Times. 22 June 2009. The Financial Times Limited, Web. 17July 2009. . Hughes, Jennifer. "US body agrees accounting changes." FT.com Financial Times. 02 April 2009. The Financial Times Limited, Web. 07 July 2009. . 8 Advantages and Disadvantages of switching from U.S.GAAP to IFRS Humphrey, Hollly. "Ernst & Young LLP Helps Universities Modify Accounting Curricula to Address International Accounting Standards." SmartBrief. 29 June 2009. Ernst & Young Global Limited, Web. 07 July 2009. . Iasplus, . "IFRSs and USGAAP: A pocket comparison." Deloitte. July 2008. Deloitte Touche Tohmatsu, Web. 16 July 2009. . International Accounting Standards Board. 12 March 2008. International Accounting Standards Committee Foundation. 12 March 2008. IOMA, . "International Financial Reporting Standards Slated to Replace GAAP." Credit-to-Cash Advisor. 25 March 2009. ABC-Amega Inc., Web. 24 July 2009. . Iwata, Edward. "U.S. considers costly switch to international accounting rules." USA TODAY. 06 Jan 2009. USA TODAY, Web. 26 Sep 2009. . Jones, Huw. "EU allows US, Japan firms to keep accounting standards." Reuters. 22 April 2009. Thomson Reuters, Web. 10 July 2009. . Jones, Huw. "US body has doubts over matching accounting reform." Reuters. 22 May 2009. Thomas Reuters, Web. 07 July 2009. . Karlin, Beth. "Switch to IFRS Gains Favor But Doubts Remain." Treasury & Risk: The Future of Finance Today. 25 Nov 2008. Treasury & Risk, Web. 12 July 2009. . Knowledge@Wharton, . "Do International Financial Reporting Standards Live Up to Their Promise?." universiaKnowledge@Wharton. 12 Dec 2007. The Wharton School of the University of Pennsylvania, Web. 13 July 2009. . Knowledge@Wharton, . "Mind the GAAP: Analyzing the Proposed Switch to International Accounting Standards." The Knowledge Behind the News. 01 April 2009. Wharton School of the University of Pennsylvania, Web. 07 July 2009. . 9 Advantages and Disadvantages of switching from U.S.GAAP to IFRS Knowledge@Wharton, . "You Say IASB, I Say FASB, You Say...." Finance and Investment. 25 Sept 2002. The Wharton School of the University of Pennsylvania, Web. 15 July 2009. . Libby, Robert, Patricia Libby, and Daniel Short. Financial Accounting. New York: McGrawHill/Irwin, 2007 Mucisko, Daniel. "Small and Mid-Size Private Companies Indicate Preference for Separate Accounting Standards: Deloitte Survey." SmartBrief. 24 July 2009. Deloitte , Web. 07 July 2009. . Norris, Floyd. " The Rush to International Accounting." Notions on High and Low Finance. 11 Sept 2009. The New York Times, Web. 13 July 2009. . NYTimes, . "UNITED STATES: SEC adopts global accounting rules ." Business. 2009. The New York Times, Web. 21 July 2009. . Pickrell, Emily. "FASB head urges decision on international accounting." Reuters. 30 April 2009. Thomson Reuters, Web. 10 July 2009. . Pwc, . "IFRS and US GAAP: similarities and differences - September 2009." PricewaterhouseCoopers. Sept 2009. PricewaterhouseCoopers, Web. 15 July 2009. . Schacht, Kurt. "CFA: Reasons to move to a global IFRS." FT.com Financial Times. 11 Jan 2009. The Financial Times Limited, Web. 17July 2009. . U.S.GAAP v. IFRS. The Basics. Fall 2007. Ernst &Young. 16 March 2008. . Watts, R., 2003a, Conservatism in Accounting Part I: Explanations and Implications, Accounting Horizons 17, 207-221 Watts, R., 2003b, Conservatism in Accounting Part II: Evidence and Research Opportunities, Accounting Horizons 17, 287-301 Williams, Mark. "Survey Reveals Many CFOs Unsure How IFRS Will Impact Their Organizations." SmartBrief. 30 July 2009. Robert Half Management Resources, Web. 07 10 Advantages and Disadvantages of switching from U.S.GAAP to IFRS July 2009. . Worob, Andrew. "Free CPE Webcasts For CPAs Launched As Global Businesses Adopt IFRS." SmartBrief. 20 July 2009. The Association of Chartered Certified Accountants, Web. 07 July 2009. . Wu, Joanna Shuang and Zhang, Ivy, Voluntary IAS and U.S. GAAP Adoption by Continental European Firms: The Role of Labor Relations (November 2006). Simon School Working Paper No. FR 06-09. Available at SSRN: http://ssrn.com/abstract=954599 Younglai, Rachelle. "US firms cautioned on int 'l accounting hurdles." Reuters. 28 Aug 2007. Thomson Reuters, Web. 20 July 2009. .
Continue Reading
View Writing Issues

You May Also Find These Documents Helpful

  • Powerful Essays

    ACC 290 IFRS v. GAAP
    • 1158 Words
    • 4 Pages

    ACC 290 IFRS v. GAAP

    Although the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) have a lot of similar guidelines and expectations, they also differ in many ways. The IFRS employs more of a “principles based” accounting standards whereas GAAP utilizes more of a “rules based” approach. Even though there are differences between terminology, revenue recognition, gains and/or losses, and statement presentation, both standards do follow the same conceptual guidelines. With the Sarbanes-Oxley Act (SOX) of 2002, the standards expected of foreign countries are significantly less than those that reside as publically owned companies in the U.S.…

    • 1158 Words
    • 4 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    Where Does the Us Stand on the Adoption of Ifrs?
    • 1356 Words
    • 6 Pages

    Where Does the Us Stand on the Adoption of Ifrs?

    The globalization of markets over the past 50 years has led to the demand for increasingly comparable financial statements across countries. In response to this demand, the International Accounting Standards Board (IASB) was formed with the purpose of developing a set of high quality global accounting standards. Although a majority of developed markets have adopted the international standards, the United States has not. One reason for the delay in adoption is that many of the standards are very similar. However, there are also several key differences between the two. Presently, the United States Financial Accounting Standards Board (FASB) and the IASB have committed to work together to develop future standards jointly (FASB, 2011). Nonetheless, the key differences will have to be resolved and many believe the FASB will ultimately adopt international standards completely. This report seeks to discuss the US situation on the adoption of IFRS (International Financial Reporting Standards, as prescribed by IASB) and the possible effect of adoption on non-public businesses and the public?…

    • 1356 Words
    • 6 Pages
    Powerful Essays
    Read More
  • Better Essays

    Ifrs vs Gaap
    • 1357 Words
    • 6 Pages

    Ifrs vs Gaap

    Over a decade ago, it was believed that the whole world would likely adopt the Generally Accepted Accounting Principles (GAAP). At the point in time, the International Financial reporting Standards (IFRS) was only about ten years old. In the last decade, the IFRS has been adopted in many growing countries. Currently, it is anticipated that the U.S. will converge its GAAP with the international IFRS, leaving behind only a modified IFRS. This may occur as early as 2014.…

    • 1357 Words
    • 6 Pages
    Better Essays
    Read More
  • Good Essays

    Comparing IFRS to GAAP
    • 889 Words
    • 3 Pages

    Comparing IFRS to GAAP

    In the Accounting industry, there are various principles and guidelines by which financial accountants, analysts, and organizations need to abide by. The International Accounting Standards Board (IASB) issues standards (IFRS) that have been adopted by the United States and several countries outside of the U.S. (Kimmel, Weygandt & Kieso, 2010). The IFRS along with Generally Accepted Accounting Principles (GAAP), professionals in the accounting industry use these guidelines as a baseline on which accounting practices are built upon. These standards are governed by the Securities and Exchange Commission (SEC) which ultimately oversees U.S. financial markets and accounting standard-setting bodies. Moving forward, the elements of IFRS and GAAP will be discussed to illustrate the similarities and differences and how it relates to Accounting and used in business practice.…

    • 889 Words
    • 3 Pages
    Good Essays
    Read More
  • Best Essays

    U.S. GAAP vs IFRS
    • 3430 Words
    • 14 Pages

    U.S. GAAP vs IFRS

    The United States is coarsely going through a big dilemma. It is deciding whether to adopt International Financial Reporting Standards (IFRS), or to stay with the current U.S Generally Accepted Accounting Principles (GAAP). Since this is such a serious decision, now would be an opportune time to take a look at what the advantages and disadvantages would be of switching to the new way of financial reporting, and doing so, shows the beliefs of the costs being too high to adopt a new set of reporting standards. People who support switching from GAAP to IFRS argue that IFRS will offer a general reporting language and consistent financial reporting for companies with global operations to make financial reporting more meaningful across borders. And. Supporters also believe that one common reporting system will cut costs for companies and make it easier for investors to compare the financial statements of companies from different countries (Diamond and Herrmann, August 2008). From the problem that the switch to IFRS would be exceedingly costly, to the fact that IFRS leaves more room for interpretation and lacks bright line rules, I will discuss all the reasons why switching to IFRS soon would not be the right decision for the U.S.…

    • 3430 Words
    • 14 Pages
    Best Essays
    Read More
  • Powerful Essays

    Gaap vs Ifrs
    • 6672 Words
    • 27 Pages

    Gaap vs Ifrs

    The generally accepted accounting principal (GAAP) and international financial reporting standard (IFRS) are standards governing how economic events are reported. In the United States, the Securities and Exchange Commission (SEC) relies on the FASB, the accounting standard-setting body of the US, to develop accounting standards that public companies must follow when publishing financial statements. On the other hand, many countries outside of the Unite States have adopted the International Financial Reporting Standard (IFRS) which is issued by the International Accounting Standard Board (IASB). In recent years, the FASB and IASB have worked closely to try to minimize the differences in their standards and principals and to merge the two systems in the future.…

    • 6672 Words
    • 27 Pages
    Powerful Essays
    Read More
  • Better Essays

    Financial Statements Ifrs vs. Gaap
    • 1606 Words
    • 7 Pages

    Financial Statements Ifrs vs. Gaap

    For those in the business world, particularly in the accounting field, a major issue has surfaced in recent years relating to the differences between Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS). Currently, the majority of countries in the world follow International Financial Reporting Standards guidelines; however, the United States still uses GAAP. This topic has been a main focus because there is a plan for convergence between the two frameworks in the near future. The United States accounting system will undergo drastic changes when this occurs, but in the long-run the idea is to simplify the accounting procedures around the world. “Through these projects, some covering major components of the financial statements, the boards intend to improve financial reporting information for investors while also aligning US and international accounting standards. These projects are a significant move toward achieving a common accounting framework, a necessary step in the globalization of business and investment” (PriceWaterhouseCoopers LLP, 2011). The main difference between GAAP and IFRS is that GAAP is considerably rule-based, whereas IFRS is more principal-based which means IFRS has room for interpretation. The specific differences are far too many to cover in a short presentation, however, an explanation of some major differences are mentioned below.…

    • 1606 Words
    • 7 Pages
    Better Essays
    Read More
  • Powerful Essays

    Ifrs in Canada
    • 1244 Words
    • 5 Pages

    Ifrs in Canada

    Over the past few years, before the consideration of IFRS and leading up to the full convergence of it, Canada’s GAAP has been a ‘no mans land’ (Martin, 2009). It was becoming vastly foreign to the rest of the world, when it was once similar to US GAAP. As a result participants in Canadian capital markets were left “increasingly uncomfortable” (Cherry, 2008). The costs of translating/reconciling these practices in various ends of foreign business were significant and repelled interest foreign investment and cross boarder-debt investment in Canadian companies. Canada accounts less than four per cent of the global capital market, so having a set of globally unrecognized financial standards served no merit; therefore a strong approach at converging IFRS was needed. (Martin, 2009). Canada’s GAAP is considered to be more alike in comparison to the gap between EU GAAP and the IFRS (Martin, 2009) allowing standards and principals to converge much easier.…

    • 1244 Words
    • 5 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    Why the U.S Should Not Adopt Ifrs
    • 1541 Words
    • 7 Pages

    Why the U.S Should Not Adopt Ifrs

    The purpose of this report is to look at the advantages and disadvantages that would occur if the United States were to switch their financial reporting standards from U.S GAAP to IFRS. My analysis will focus on: The differences between IFRS and U.S GAAP, the cost it would take to implement a new set of reporting standards, the education and training gaps, and the advantages vs. the disadvantages of adopting IFRS.…

    • 1541 Words
    • 7 Pages
    Powerful Essays
    Read More
  • Powerful Essays

    Merger of the FASB and IASB
    • 2550 Words
    • 8 Pages

    Merger of the FASB and IASB

    The proliferation and evolution of international trading and commerce have not only opened the gateway to international markets for many of the world’s emerging economies, but they have also fostered an unprecedented growth in the number of multinational corporations. Spurred by trade agreements such as the North American Free Trade Agreement (NAFTA) and the World Trade Organization (WTO), the rapid expansion of global commerce has revealed many inherent obstacles and risks within the international financial structure. Disparate political, ethical, economic, and legal policies have impacted recording standards and are responsible for many inconsistencies in international financial reporting. Domestic accounting standards, collectively referred to as U.S. GAAP, or Generally Accepted Accounting Principles, are set and maintained by the Financial Accounting Standards Board (FASB), while international standards, known as International Financial Reporting Standards (IFRS), are issued by the International Accounting Standards Board (IASB). Citing the detrimental effects of accounting fraud by several large publicly owned firms, the subsequent passage of the Sarbanes-Oxley Act of 2002, and pressure from foreign governments and investors, the IASB and FASB begun work on a collaborative framework intended to merge U.S. GAAP standards with IFRS. The convergence of the two systems will eliminate nuances, rectify internal contradictions, and create a uniform set of standards to be used both domestically and internationally. However, despite its many apparent benefits, the plan has been met with skepticism and objections from some accounting professionals.…

    • 2550 Words
    • 8 Pages
    Powerful Essays
    Read More
  • Good Essays

    Bessrawl Memo
    • 929 Words
    • 4 Pages

    Bessrawl Memo

    Another benefit of implementing the use of IFRS is that it will reduce the financial reporting costs in the long run. IFRS is already used in many countries around the world. The U.S.-based multinational companies need to prepare their consolidated financial statements in U.S. GAAP, where most of the foreign financial statements are prepared in accordance with IFRS or local GAAP. The process of consolidation of financial statements could be costly and time consuming. By switching to…

    • 929 Words
    • 4 Pages
    Good Essays
    Read More
  • Better Essays

    Ifrs vs. U.S. Gaap: Differences and Consequences of U.S. Adoption
    • 2306 Words
    • 10 Pages

    Ifrs vs. U.S. Gaap: Differences and Consequences of U.S. Adoption

    This paper was prepared for managers and business owners who are concerned about the possible U.S. adoption of IFRS, and its effects on financial reporting and other effected areas.…

    • 2306 Words
    • 10 Pages
    Better Essays
    Read More
  • Better Essays

    Acc 403 Generally Accepted Accounting Principles (Us Gaap)
    • 1029 Words
    • 5 Pages

    Acc 403 Generally Accepted Accounting Principles (Us Gaap)

    IFRS are International Financial Reporting Standards issued by the International Accounting Standards Board (IASB). Nearly 100 countries use or coordinate with IFRS. These countries or groups of countries include the European Union, Australia, and South Africa. While some countries require all companies to adhere to IFRS, others merely allow it or try to coordinate their own country’s standards to be similar. The IASB is working toward this goal in a partnership with some of the most influential accounting standard-setters across the globe. Because of globalization, it is paramount that the world markets be on one accord in…

    • 1029 Words
    • 5 Pages
    Better Essays
    Read More
  • Good Essays

    Uniform Accounting Standards
    • 796 Words
    • 4 Pages

    Uniform Accounting Standards

    In the last decade, various countries around the globe have shifted towards a uniform accounting standards or the International Financial Reporting Standards (IFRS). The main motive behind this movement is to come up with a global language for accounting which will be comparable and understandable beyond the borders of a nation. As of today about 120 countries require IFRS for domestically listed companies, although only about 90 countries have fully conformed to IFRS . While some argue that it is necessary to have a system of accounting that is clear and transparent to global investors and companies, some others are skeptic about it being efficient. Furthermore, some feel that the costs of implementing IFRS can be too high and hence uniform…

    • 796 Words
    • 4 Pages
    Good Essays
    Read More
  • Powerful Essays

    Uniform Accounting Standards
    • 1544 Words
    • 7 Pages

    Uniform Accounting Standards

    In an increasingly interconnected world, the operations of international corporations are transnational. In addition, more and more investing takes place on a global level. Historically, different countries have developed their own national accounting standards. Before the introduction of the IFRS, the accounting principles of neighbouring countries were similar in many respects but used different financial reporting standards. Numerous accounting standards can lead to confusion and large complications for preparers and users of financial statements. Financial statements prepared under different countries’ financial accounting rules are often…

    • 1544 Words
    • 7 Pages
    Powerful Essays
    Read More

Related Topics