Choose one of the articles that your classmates have posted, and provide your own reaction to it.
Classmates post below
Re:Module 6 DQ 1 – International Financial Reporting Standards and American Generally Acceptepted Accounting Principles: The Convergence Lessons.
The article titled International Reporting Standards (IFRS) and American Generally Accepted Accounting Principles addresses the lessons learned behind the convergence of IFRS. The article discusses the impact on standardizing reporting based on empirical research that is also used by SEC and the board of trustees of the IFRS board. The Financial Accounting Standards Board (FASB) and International Accounting Standards board came together in to 2002 and created the Norwalk agreement to transition into a unified standards system in an effort to resolve political and technical accounting issues. IFRS has had trouble gaining traction as companies have done their own evaluation to explore the pros and cons. The U.S. was involved in developing new versions of IFRS as part of the convergence; however, they failed to apply IFRS in 2012. This decision, as documented by the SEC was made because of the high costs projected in transitioning domestic companies to abide to the new standards and confusion it would create for investors.
Prior to the application deadline, the SEC completed a “workplan” to evaluate the repercussions involved with making the transition in 2010. This involved extensive research to determine when IFRS could be applied and how it would be implemented. In 2011, the SEC published further research titled “Analysis of the application of IFRS in practice” which utilized consolidated statements from Fortune 500 largest revenue company list prepared in accordance with IFRS. This study revealed that transparency required improvement, disclosures were questionable, and that the diversity in IFRS application made it hard for companies to be compared to one another. Essentially, the study revealed that GAAP includes contains more detail and is more specific on its requirements. As a result, the SEC has not transitioned US companies to follow IFRS.
In my opinion, the studies conducted on behalf of the SEC were necessary. The research was needed in order to relieve any doubt and evaluate advantages and disadvantages. Since public companies, seek out investors from all over the world, having financial statements that follow the same standards for comparison, is beneficial. Since there are differences in standards, foreign investors must evaluate U.S. financial statements from a different lens. The workplan uncovered some of the struggles that IFRS is facing today, such as the lack of precise accounting treatment. Additionally, there are still countries that have not adopted IFRS, as IFRS has yet to make improvements such as defining accounting principles for all industries, and narrowing down some its context. Moving forward, if plans on convergence arise at full speed again, now the SEC has a foundation to build on as they know exactly what is needed in order to make the transition. Establishing a relationship between both boards could help to eliminate some of its biggest differences related to recognition of assets and liabilities.
Kuzina, R. (2015). INTERNATIONAL FINANCIAL REPORTING STANDARDS AND AMERICAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES: THE CONVERGENCE LESSONS. Socio-Economic Problems & The State, 12(1), 160-168. Retrieved from: https://lopes.idm.oclc.org/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=a9h&AN=111329128&site=eds-live&scope=site