| If corporations want to stay successful, they | | | | global competitions is an important part in making |
| need to find new ways of expanding their | | | | the business grow. Investors also benefit from |
| market. Lots of big corporations have already | | | | this, since they are able to compare apples to |
| globalized, and many more will follow. If these | | | | apples on financial statements. |
| companies are globalizing, it would make sense to | | | | With this big change in reporting standards, there |
| have globalized accounting systems. | | | | are some criticisms. One of the biggest concerns |
| Currently, companies in the US use generally | | | | about the IFRS is that there are very little to no |
| accepted accounting principles (GAAP) to report | | | | enforcement. While GAAP is enforced by the US |
| their financial statements; while the rest of the | | | | SEC, there is no international securities and |
| world use international financial reporting standards | | | | exchange commission to watch over IFRS. People |
| (IFRS). The U.S. Securities and Exchange | | | | argue that the new standards are weak without |
| Commission plans to switch from GAAP to IFRS | | | | administration to control it. Another criticism is |
| in the near future. | | | | that many companies that proclaim they follow |
| While the transfer from GAAP to IFRS will take | | | | IFRS are not totally compliance with IFRS. Some |
| some time, the SEC is optimistic that most of the | | | | countries modify their standards from the IFRS |
| major US companies will follow IFRS by 2014. The | | | | to accommodate their interests, companies who |
| European Union, which is made up of twenty | | | | are using IFRS range from thirteen to one |
| seven countries in Europe, has already moved to | | | | hundred percent compliance to IFRS. Some |
| IFRS from 2002 to 2005 with a fairly steady and | | | | companies state that the cost of switching from |
| smooth transition. US companies can learn from | | | | GAAP to IFRS doesn't outweigh the benefits of |
| the problems their EU competitor's had to deal | | | | IFRS. The costs come down to retraining |
| with when they made their transition, to make | | | | accountants as well as investors to get |
| their change even easier. There is also a | | | | comfortable with IFRS. The change will also affect |
| difference between adopting IFRS and converging | | | | college level courses, if there isn't enough time to |
| to IFRS. Adopting IFRS means that companies | | | | reform the curriculum, there may be a shortage |
| are required to use IFRS to file their financial | | | | in accountants that are failure with IFRS. They |
| reports, while converging IFRS means that the | | | | see no reason to switch because many still see |
| International Accounting Standards Board (IASB) | | | | GAAP as the golden standard in accounting |
| would work with Financial Accounting Standards | | | | reporting. |
| Board (FASB) to create a set of compatible | | | | No matter what people think, it seems like the US |
| accounting standards over a period of time. | | | | SEC has made up their mind to make the IFRS |
| This switch is important because consistency and | | | | mandatory for big, global companies. It is clear |
| comparability are some of the qualitative | | | | that many of the disadvantages of IFRS are just |
| characteristics of accounting information. It's | | | | short term, for example the costs of transition; |
| easier to compare different companies from | | | | while the advantages are long term. Whether |
| around the world if everyone decided to use the | | | | they are able to accomplish it in the current |
| same reporting standards. Benchmarking with | | | | deadline of 2014 is another thing. |