International Financial Reporting Standards (IFRS) are now the most widely used accounting standard around the world now with over 12000 companies in 113 countries adopting the IFRS standards in their financial reporting. However, despite of enhanced reach of IFRS standards now, the United States is still following their conventional GAAP standards and now there is a growing demand in the nation to adopt the IFRS standards.The paper will analyze the benefits and costs associated with the adoption of IFRS standards in the United States:
Benefits of adoption of IFRS in the United States:
a) Global Comparability and Better access to foreign capital markets and investments:
The first and the foremost advantage of the IFRS accounting standards in the US, is related to the easy comparability of the financial statements with that of other companies around the globe. At present, comparing the financial statements prepared under GAAP standards to the one prepared under IFRS involves a lot of assumptions and is also a time consuming process. However, if the US firms adopt the IFRS standards, this will allow the users of the financial statements to compare the performance of various companies from different parts of the world on the same plane. Furthermore, as the comparability of financial statements improves, this will also promote cross-border investment in the United States and with greater liquidity and low cost of capital, the economy will also see the investor base growing.
Costs of adoption of IFRS in the United States:
a) High cost of adoption of new accounting standard:
The primary disadvantage for the US firms to adopt IFRS accounting standards is related to high cost of implementation of IFRS accounting standard relating to adjusting their accounting systems and processes, training of their employees and cost related to hiring of outside specialists and consultants. As per an estimate, the transition cost from GAAP to IFRS will cost at least $8 Billion for the US economy, which in average amounts to $420000 for each firm. Although, the cost might be affordable for the multinational corporations, but it will impossible for the small and local firms to absorb such high cost of transition and this raise serious doubts on their survival if IFRS adoption is declared mandatory.
b) Threat to supremacy of FASB and other authoritative US bodies:
Another disadvantage for the US economy on adoption of IFRS standards is a possible threat to the supremacy of FASB and other federal bodies over their control on accounting rules in the United States. At present, all the accounting standards in the country are set by FASB along with the Congress, the Securities and Exchange Commission (SEC) and some court precedents. Hence, allowing the IFRS in the United States will end the control of FASB and other authoritative bodies. Furthermore, even though USA is a member of IASB, but many firms in the US have serious concerns that it will be underrepresented and as a results, these firms will also lose the control over the American equity market. In other words, U.S. companies worry that U.S.’s interests will not be served as well as they were under FASB and these might involves loss of millions of dollars for the US firms every year.
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