The United States membership of IASB has been a subject of debate among practitioners in the field of accounting. In the year 2008, the United States’ Security and Exchange Community presented a road map that required that companies based in the United States present financial reports using IFRS instead of the conventional USGAAP. The new policy induced a shift towards the international IFRS. This report examines the causes the debate. The paper also highlights how U.S entrance into this committee changes the practice of accounting in this country.
IFRS is an acronym for International Financial Reporting Standards which is a group accounting regulations stipulated by the International Accounting Standards Board (IASB). The rules are becoming applicable internationally as the standard for preparing the financial statements for public companies. The ISAB is an international organization comprising 15 countries until the United States joined in 2012 thereby increasing the membership to 16. Before 2001, IASB used to be known as the International Accounting Standards Committee. While the membership of IASB is limited, the rules of IFRS have been accepted by almost 120 countries. These rules require that public companies in member countries audit their financial reports using the IFRS regulations (IFRS Blog, 2009). SEC foreign registrants, without reconciliation to U.S GAAP, use IFRS. U.S GAAP refers to the Generally Accepted Accounting Principles. In theoretical sense, these acronym stands for the general ethics wholesomely applied in the accounting field. The United States applies because the government has limited control over private firms since the common law bestows resource allocation to private entities.
Proponents of the IFRS argue that adopting the IFRS enables companies to compete as equals in the international market. For the reason, all companies trading in the stock market should adhere. Companies from the United States would be able to present financial statements as equals with foreign competitors thus making analysis of financial position of companies easier for tender rewards. In addition, IFRS makes it possible for companies with sister companies or subsidiaries across the globe use the same accounting standards. The application of the same standard not only facilitates quick and efficient budgeting but also ensures the use of one accounting language at the global stage. Moreover, companies with the intention of raising capital abroad will find the use of IFRS reliable or prompt in ensuring the success of the venture (AICPA IFRS Resources, 2012). Opponents of the IFRS in the United States stock market cite that IFRS’ assumption of equality is a façade. If the United States accepts the IFRS requirements, then the quality of accounting will be compromised.
A school of thought believes that the United States and IFRS has oversold the argument about comparability. The company’s position cannot necessarily be similar to that of the country in terms of the application of IFRS requirements. This school of thought proposes a middle ground that advocates for convergence instead of full adoption. The argument presented by this school of thought is that while convergence will not eliminate all the differences that accrue from full adoption, it will save the United States some cost and risks of adopting the package (Cohn, 2010).However, the opponents of IFRS admit that the United States would do fine with the GAAP. Other arguments laid out for the failure of IFRS include the lack of incentive by companies to prepare international statements. According to the opponents, the cost of laying out IFRS requirements would more than the benefits from it.
Should the United States force companies to adopt International Financial Reporting Standards? Alternatively, should this decision be left for the companies to make on their own?
Pre-Test: What are the benefits of adopting the IFRS accounting regulations?
Post-Test: Do you think the United States should converge or fully adopt the IFRS regulations?
American Institute of Certified Public Accountants. (2012, June 12). INTERNATIONAL FINANCIAL REPORTING STANDARDS. Retrieved June 22, 2012, from http://www.ifrs.com/ifrs_faqs.html#q1
COHN, M. (2010, October 29). Controversy Continues over IFRS Costs. Retrieved June 8, 2012, from http://www.accountingtoday.com/debits_credits/Controversy-Continues-IFRS-Costs-56128-1.html
IFRS Blog. (2009, May 18). IFRS: Convergence or Adoption. Retrieved June 20, 2012, from http://blog.ifrs.com/2009/05/ifrs-convergence-or-adoption.html