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  • You work for the Brisbane office of an international firm of public accountants. You have been asked to prepare a report for the partners on the topic of the United States’ convergence to International Financial Reporting Standards (IFRSs). Some of the fi

You work for the Brisbane office of an international firm of public accountants. You have been asked to prepare a report for the partners on the topic of the United States’ convergence to International Financial Reporting Standards (IFRSs). Some of the fi Essay Example

Title: A Report on U.S’ Convergence to International Financial Reporting Standards (IFRS)

Table of Contents

Executive summary 3

Background information about (IFRS) 3

5Current developments in the relationship between the United States SEC, FASB and IASB and other regulatory bodies

6Obstacles to the United States adoption of IFRS

6Implications of the U.S’ convergence to IFRS, particularly for reporting entities in other jurisdictions

Conclusion 7

Bibliography 9

Executive summary

Accounting offers useful information to the decision-makers. Therefore, the change in business environments has also led to the change in accounting standards, particularly those that govern discovery and presentation of information. Global accounting standards are very central to this idea. Although there are numerous benefits and risks associated with converting to IFRS, it is important to consider a few major factors prior to its implementation. IASB and FASB are working collaboratively toward convergence. However, various differences exist between these two sets accounting standards. This requires companies to first assess the value of standards that will create a direct and positive impact to their organizations, conduct research on the principles as well as have a strong understanding of them prior to application (Doupnik, 2007).

Brisbane office of international firm of public accountants has requested a report on the United States convergence to the International Financial Reporting Standards (IFRSs) for its partners. The purpose of this report is to provide some relevant background information about (IFRS), a highlight of the current developments in the relationship in the relationships between Financial Accounting Standards Board (FASB), International Accounting Standards Board (IASB), Securities and Exchange Commission (SEC) and the rest of other regulatory bodies, examines the obstacles to the United States adoption of IFRS and concludes with an outline of the likely implications of the United States convergence to IFRS, with particular focus reporting entities in other jurisdictions (Street 2011)

Background information about (IFRS)

The rising acceptance of International Financial Reporting Standards (IFRS) as the basic standard for U.S financial reporting is perceived to be a fundamental change in its accounting profession. It can be observed that over a 100 countries allow the application of IFRS in the preparation of their financial statements by the publicly held companies. Today, the Securities and Exchange Commission (SEC) is planning to take the necessary steps in setting a date to permit the U.S. public companies to apply IFRS in addition to making its adoption a mandatory principle. This implies that this international standard-setting process was introduced many decades ago as efforts made by the industrialized nations to develop standards which could be applied by the developing or smaller nations, particularly those unable to create their own accounting principles (SEC 2010).

However, it is reported that as the business world turned out to be more globalized, regulators and investors of the large companies and auditing firms begun to realize the significance of having some common standards within all the areas of financial reporting chain. Worldwide momentum on international accounting standards indicates that globalization of the business and finance has driven over 12,000 companies in nearly a hundred nations to adopt IFRS standards. Generally Accepted Accounting Principles (GAAP) requires IFRS to be applied in publicly accountable entities. The accounting firms have projected 2013 as the earliest year for mandating that big public companies in the U.S. convert all their financials to IFRS (Johnny 2011).

Although the implementation of international accounting standards such as IFRS has significant benefits, there are yet many challenges that further require developments as well as authoritative implementation. In order to better understand such challenges, the social and cultural values, standards for setting processes, political and legal systems, capital markets and the forms of the business ownership as well as the cooperative efforts made by various nations as influences to the establishment of the accounting regulations need to be examined. This is because international accounting standards are vital in today’s business world and will certainly become increasingly important in the future as they undergo further developments (McGee 2006).

Current developments in the relationship between the United States SEC, FASB and IASB and other regulatory bodies

The International Accounting Standards Board (IASB) operates as the successor association to the International Accounting Standards Committee (IASC). The mandate of IASB is to develop IFRS. Great strides are implemented by the FASB and IASB to largely converge the ideas of IFRS and United States’ Generally Accepted Accounting Principles (GAAP). SEC’s in its international efforts has emerged to be a strong leader in the development of a core set of accepted accounting standards. This serves as one of the main frameworks for the financial reporting in the cross-border offerings.

SEC has more often than not put a mandate that issuers, who may wish to raise some capital in different countries, should face the growing compliance costs and inefficiencies associated with the preparation of multiple sets of the financial statements so as to comply with the various jurisdiction accounting requirements. The idea is that by the time SEC mandates the application of IFRS for the U.S. freely traded companies. All the major disparities will have been resolved amicably (SEC 2011).

SEC has introduced a proposal for IFRS “roadmap” and the specific rule amendments that would permit the application of IFRSs for some U.S. issuers.
The roadmap to a larger extent acknowledges that IFRSs has the potential to become a worldwide set of the high-quality accounting standards. This suggests for the formal development of a timetable and some appropriate milestones that must be achieved for the mandatory change to IFRSs which start for the fiscal years and end on or after the December 15, 2014. Due to such ongoing convergence programmes, the level of specific differences between U.S. IFRS and GAAP is shrinking (SEC Release 2010).

Accelerated convergence timeline is yet another current development U.S’ accounting standards. It has been discovered that both FASB and IASB have reached consent to update the Norwalk in order to lay out an ideal plan for a single set of the accounting standards, under which all the major capital markets will be required to be in operation by 2013. Therefore, the concerned boards will work in a collaborative manner to solve the differences considered to have impeded the adoption of IFRS in the U.S(Brian 2011).

Obstacles to the United States adoption of IFRS

Potential obstacles to the US adoption of IFRS basically include some concerns about the International Accounting Standards Board’s governance as well as the consistent application of the IFRS in various countries across the globe.In addition, the key issue involves ensuring that a real agreement is made on the purpose of the financial reporting, particularly one which is considered in the US’ law to protect the investors. However, various researches indicate that the capital market is one of the benefits of IFRS adoption, providing a high level of comparability between the US GAAP and IFRS (Massoud 2011).

Implications of the U.S’ convergence to IFRS, particularly for reporting entities in other jurisdictions

The growing interest with the global acceptance of a common set of the robust accounting standards originates from the participants found in capital markets. Therefore, a number of the multinational companies, national regulators as well as capital market users widely support its implementation. This is because of the shared belief they have on the application of common standards in preparing of the public company’s financial statements is to make easier comparisons of the financial results, particularly the various reporting entities found in different countries (McGee 2006).

The U.S’ convergence to IFRS is perceived to facilitate big public companies identified with subsidiaries within the multiple jurisdictions to use a single or common accounting language. This is expected to be a company-wide intervention that will enable such companies to present all their financial statements through the same language as of their competitors. However, majority of the people also consider the U.S. GAAP as the gold standard, thus they argue something significant will be lost if IFRS is fully accepted. The argument is that other U.S. issuers will be able to use their own financial statements as the basic filing system with the rest of other financial regulators and authorities who may need U.S. GAAP.

Another worldwide concern is that various countries that claim to be convergence to the international standards of accounting may never get fully compliance to the required standards. This is because many countries reserve the right to shape out selectively or simply change the standards that are considerably of their national interest. It is apparent that this action may lead to incomparability which is the exact issue that the IFRS seek out to address (Tarca 2010).

Conclusion

Adoption of the international accounting standards proves to be an idea that has for long waited within the wings of decades. The increased global nature of today’s business environment and the coupled complexity of the financial dealings greatly propel the global accounting standards into its public interest The plan for SEC is based on the gradual and tentative understanding. However, it represents a more revolutionary change in the U.S’ accounting environment.

The leading opposition to adoption of IFARS is basically political, though a number of the IFRS’ opponents consider this obstacle as an issue that is easily diffused. Convergence of FASB and IASB plan has emerged to be one of the leading advantages in support of IFRS to gain a foothold. It is apparent that the U.S. GAAP and IFRS the most widely applied accounting standards.

Bibliography

Brian, S., 2011, Commentary: IFRS – The SEC’s Roadmap and the Contribution of the Academic Community. Australian Accounting Review, 20(4), 407–408.

Doupnik, H.S., 2007, Advanced Accounting, 8th ed. McGraw-Hill Irwin.

Johnny, K., 2011, IFRS: A Detailed look at progress in the United States. CMC Senior Theses, Paper 132, Retrieved September 9, 2011 from,

http://scholarship.claremont.edu/cmc_theses/132

Massoud, M., 2011, The Road to International Financial Reporting Standards (IFRS): Opportunities and Challenges, Rep. Claremont, Claremont McKenna College.

McGee, R., 2006, Adopting and implanting International Accounting Standards, Regulations and Financial Reporting. Ed Greg Gregriou and Mohamed Gaber. Elsevier Ltd.

SEC Release, 2010, Roadmap for the potential use of financial statements prepared in accordance with International Financial Standards by U.S. Issuers. Retrieved September 9, 2011 from,

http://www.sec.gov/rules/proposed/2008/33-8982.pdf

Securities and Exchange Commission U.S. 2010, Study pursuant to Section 108(d) of the Sarbanes-Oxley Act of 2002 on the adoption by the United States Financial Reporting System of a Principles-Based Accounting Systems. Retrieved September 9, 2011 from,

http://www.sec.gov/news/studies/principlesbasedstand.htm

Securities and Exchange Commission (SEC), 2011, Work plan for the consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers Progress Report, Retrieved September 9, 2011 from,

http://www.sec.gov/spotlight/globalaccountingstandards/globalaccountingstandards.pdf

Street, D.L., 2011, International Convergence of Accounting Standards: What Investors need to know, University of Dayton.

Tarca, A., 2010, International Convergence of Accounting Practices: Choosing between IAS and US GAAP, Journal of International Financial Management and Accounting, 15(1), 60-90.