Why the U.S Should Not Adopt Ifrs
Introduction
The United States is currently going through a big decision. It is deciding on whether to fully adopt International Financial Reporting Standards (IFRS), or to stay with the current U.S Generally Accepted Accounting Principles (GAAP). Since this is such a major decision, now would be an opportune time to take a look at what the pros and cons would be of switching to this new way of financial reporting, and in doing so, show why I believe the costs (both financial and otherwise) are too high to adopt a new set of reporting standards.
Purpose and Scope
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.
Analysis
The Differences between IFRS and U.S GAAP
The Encyclopedia of Business and Finance’s summarizes and explains what the main difference of GAAP and IFRS: “[GAAP] are not a set of specific circumscribed standards that can be easily found in one convenient set of rules and that it is highly regarded in the United States for the quality and comparability of the information they provide. Investors and other users have also been well served by our system of financial reporting.” The major difference between IFRS and U.S.GAAP is that IFRS requires more discretion and that U.S.GAAP is more principles-based and detailed. IFRS has wider rules and less specific guidance applications, giving more room to interpretation. Thus, IFRS incorporates the value judgment of an accountant in its financial report. These value judgments can easily be influenced by incentives a company may have, causing a variety of ways to implement IFRS.
In comparison, IFRS provides much less overall detail. Its
The United States is currently going through a big decision. It is deciding on whether to fully adopt International Financial Reporting Standards (IFRS), or to stay with the current U.S Generally Accepted Accounting Principles (GAAP). Since this is such a major decision, now would be an opportune time to take a look at what the pros and cons would be of switching to this new way of financial reporting, and in doing so, show why I believe the costs (both financial and otherwise) are too high to adopt a new set of reporting standards.
Purpose and Scope
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.
Analysis
The Differences between IFRS and U.S GAAP
The Encyclopedia of Business and Finance’s summarizes and explains what the main difference of GAAP and IFRS: “[GAAP] are not a set of specific circumscribed standards that can be easily found in one convenient set of rules and that it is highly regarded in the United States for the quality and comparability of the information they provide. Investors and other users have also been well served by our system of financial reporting.” The major difference between IFRS and U.S.GAAP is that IFRS requires more discretion and that U.S.GAAP is more principles-based and detailed. IFRS has wider rules and less specific guidance applications, giving more room to interpretation. Thus, IFRS incorporates the value judgment of an accountant in its financial report. These value judgments can easily be influenced by incentives a company may have, causing a variety of ways to implement IFRS.
In comparison, IFRS provides much less overall detail. Its