International Business
Bonus Research Paper
Chris Fluharty
There have been many reports regarding the United States switching from Generally Accepted Accounting Principles (GAAP) in favor of the international standards, International Financial Reporting Standards (IFRS), followed by most of the world. This modification would represent one of the prevalent accounting rule changes for public companies based in the U.S. Among other issues, it would likely dislodge the Financial Accounting Standards Board, or FASB, as the U.S.’s chief accounting authority, incorporating it under the London-based International Accounting Standards Board (IASB). Many ask why the companies in the U.S. would want to switch over to IFRS. First we need to know the difference between the two approaches. The main difference between the GAAP and the IFRS is the approach each takes to the standards. The GAAP is rules-based while the IFRS is a principles-based methodology. The GAAP consists of a complex set of guidelines attempting to establish rules and criteria for any contingency, while the IFRS begins with the objectives of good reporting and then provides guidance on how the specific objective relates to a given situation (Pologeorgis). Switching to IFRS will help companies, investors, and the public globally compare their financial statements easier. By adopting IFRS, a business can present its financial statements on the same basis as its foreign competitors, making comparisons easier (Albrecht). If every country has a different set of financial standards, while multinational companies exist in different countries, it is difficult to compare how each company stands because there is no consistency. Consistency is a key factor in comparing statements. Without the one set of global standards, it will be more difficult, if not impossible, to compare with their competitors due to extra finances and time. With an international accounting standard in place it allows companies and
Chris Fluharty
There have been many reports regarding the United States switching from Generally Accepted Accounting Principles (GAAP) in favor of the international standards, International Financial Reporting Standards (IFRS), followed by most of the world. This modification would represent one of the prevalent accounting rule changes for public companies based in the U.S. Among other issues, it would likely dislodge the Financial Accounting Standards Board, or FASB, as the U.S.’s chief accounting authority, incorporating it under the London-based International Accounting Standards Board (IASB). Many ask why the companies in the U.S. would want to switch over to IFRS. First we need to know the difference between the two approaches. The main difference between the GAAP and the IFRS is the approach each takes to the standards. The GAAP is rules-based while the IFRS is a principles-based methodology. The GAAP consists of a complex set of guidelines attempting to establish rules and criteria for any contingency, while the IFRS begins with the objectives of good reporting and then provides guidance on how the specific objective relates to a given situation (Pologeorgis). Switching to IFRS will help companies, investors, and the public globally compare their financial statements easier. By adopting IFRS, a business can present its financial statements on the same basis as its foreign competitors, making comparisons easier (Albrecht). If every country has a different set of financial standards, while multinational companies exist in different countries, it is difficult to compare how each company stands because there is no consistency. Consistency is a key factor in comparing statements. Without the one set of global standards, it will be more difficult, if not impossible, to compare with their competitors due to extra finances and time. With an international accounting standard in place it allows companies and
References: 1. Albrecht, David. 2008. Why Switch to IFRS from GAAP? Available from Internet, http://profalbrecht.wordpress.com/2008/12/20/why-switch-to-ifrs-from-gaap/, accessed 18 November 2013. 2. Iwata, Edward. 2009. U.S. considers costly switch to international accounting rules. Available from Internet, http://usatoday30.usatoday.com/money/companies/regulation/2009-01-05-international-accounting-rule-switch_N.htm, accessed 18 November 2013. 3. Pologeorgis, Nicolas. 2013. The Impact of Combining the U.S. GAAP and IFRS. Available from Internet, http://www.investopedia.com/articles/economics/12/impact-gaap-ifrs-convergence.asp, accessed 18 November 2013. 4. Briginshaw, John. 2008. What will the International Financial Reporting Standards (IFRS) Mean to Business and Investors? Available on Internet, http://gbr.pepperdine.edu/2010/08/what-will-the-international-financial-reporting-standards-ifrs-mean-to-businesses-and-investors/, accessed 18 November 2013. 5. Wharton University of Pennsylvania. 2009. Mind the GAAP: Analyzing the Proposed Switch to International Accounting Standards. Available from Internet, http://knowledge.wharton.upenn.edu/article/mind-the-gaap-analyzing-the-proposed-switch-to-international-accounting-standards/, accessed 18 November 2013.