Thoughts and Opinions about the Possible Transition From GAAP to IFRS

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Table of Contents

Introduction
Advantages of adopting international financial reporting standards
Suggested transition from United States’ GAAP to IFRS
Possible effects of transition on companies and individuals
Conclusion
References

Introduction

Organized bodies, both at national and international levels, regulate the accounting profession. These bodies are under the umbrella guidance of international accounting standards board. The international accounting standards board (IABS) formulates policies and guidelines for regulating the profession while the national bodies adopt national policies for implementing the IABS’s guidelines. This paper seeks to discuss possible changes that should be made to the United States’ generally accepted accounting principles (GAAP) for conformity with the international accounting standards board’s international financial reporting standards (IFRS). The paper will explore the difference between the two regulations to identify necessary initiatives for aligning the United States’ regulations to those of the international accounting standards board.

Advantages of adopting international financial reporting standards

Uniformity in accounting for property and entities has been one of the major needs fronted by globalization. Operations of multinational companies in different countries have involved interactions with different cultures and regulations, causing conflicts in accounting practices. This has led to establishment of common and better accounting policies with the aim of harmonizing the profession. One of the advantages of adopting universal applications is provision for a comparable ground. Globalization trend that has attracted companies and investors from different countries requires that a comparative approach be applied to ensure informed investment decision making. Similarly, enterprises in the same industry need a common reference for effective benchmarking. Aligning the United States’ GAAP to the global IFRS standards will therefore allow American companies and investors to make comparisons with economic environments in other countries. IFRS have also been associated with significantly higher quality reporting and lower “cost of capital” due to reduced risks as perceived by investors (Wiese, 2009, 6).

Suggested transition from United States’ GAAP to IFRS

Lack of uniformity in accounting policies has led to difference in treatment and reporting of accounting information. This difference has been significant even among translated versions of IFRS provisions. Realization of the benefits of uniformity therefore calls for strict adoption and interpretation of the universal guidelines (Tsakumis et al, 2009). Conclusions from research activities that indicates more advantages of IFRS regulations over the United States’ GAAP also elicits the need for America to realign its accounting practices to the internationally adopted IFRS provisions. One of the disadvantages of the GAAP, its dependence on legal frameworks, has led to undermining of the principles of transparency because of practices that are imposed by the laws. Similarly, the IFRS regulations have been associated with low capital costs and high liquidity ratios. This is due to the level of transparency in the standards, which leads to low perceived risks by investors (Zmags, n.d.).

The currently existing flexibility to allow for the use of IFRS regulations in the United States is also an indicator that the principals are gaining roots in America. There is also the isolation factor of the United State as an economy that has not adopted the international regulations. The identified differences between IFRS and America’s GAAP show that IFRS have more advantages than the GAAP. The move to allow for application of IFRS in the nation together with moves by the national accounting body realign GAAP to conformity with IFRS also indicates the opinion that the United States is shifting from GAAP to IFRS (Zmags, n.d.).

Possible effects of transition on companies and individuals

The transition from GAAP to IFRS will have a variety of impacts at both corporate and personal level. Improved transparency and reduced capital cost will facilitate investments and productivity. It will also motivate individuals to invest due to low risks (Zmags, n.d.).

Conclusion

The United States has been reluctant to adopt the internationally applied IFRS. A slow transition has however been witnessed with hopes that IFRS will eventually be adopted in the United States. My personal thoughts and opinions therefore lead to the conclusion that the United States will finally adopt IFRS to the benefit of investors and economic growth.

References

Tsakumis, G., Campbell, D. and Doupnik, T. (2009). IIFRS: Beyond the standards. Web.

Wiese, N. (2009). Voluntary Implementation of IFRS in German Non-Listed Companies. Norderstedt, Germany: GRIN Verlag

Zmags. (n.d.). The economic effects of IFRS adoption. Web.

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Thoughts and Opinions about the Possible Transition From GAAP to IFRS

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