| Globalization is a trend businesses cannot ignore. | | | | inches thick, while International Reporting |
| The transformation to International Financial | | | | Standards measures only between two and three. |
| Reporting Standards (IFRS) from U.S. GAAP | | | | No matter how you look at it, the main goal and |
| began in early 2005, with numerous states in the | | | | reason to convert to IFRS is to put everyone |
| European Union adopting techniques to prepare | | | | globally on the same level with respect to |
| their financials in accordance with the new | | | | preparing financial statements. This being said and |
| standards. Since 2005, many states that were | | | | done will allow domestic companies to present |
| planning on converting to U.S. based Generally | | | | their financials on the same level as foreign |
| Accepted Accounting Principles (GAAP) have | | | | competitors. Furthermore, companies with |
| switched their focus to adopting IFRS. Countries | | | | subsidiaries on other continents will be able to |
| like New Zealand, Canada, and Australia have | | | | prepare statements in one, worldwide, universal |
| already implemented IFRS, while Japan plans to do | | | | accounting language understood by all. While it all |
| so by 2011 and the United States by 2014; a | | | | sounds easier and less confusing, the only way |
| huge change that will affect everyone. | | | | IFRS will work is if firms comply one hundred |
| Now that a little background has been brought to | | | | percent. Not fully converting will eliminate the main |
| the table on the history of International Financial | | | | goal- global comparability. |
| Reporting Standards, it is important that you | | | | The main goal of global conversion may be hard |
| know the key differences when comparing U.S. | | | | to achieve. Many believe that U.S. Generally |
| based GAAP with IFRS. To begin, IFRS does not | | | | Accepted Accounting Principles is a tried and true |
| permit Last in First Out (LIFO) as an inventory | | | | standard, the foundation of U.S. accounting |
| cost method. However, it is to my knowledge | | | | success. We have to question if something will be |
| that only a small number of companies, about ten | | | | lost with the acceptance of International |
| percent still use LIFO. IFRS ideas regarding | | | | standards or if it could even work without |
| revenue recognition are more widespread than | | | | complete convergence. Two problems exist that |
| GAAP containing very little instruction specific to | | | | may present an issue to certain firms facing the |
| each industry. IFRS uses a single-step method for | | | | question of whether to convert or not. Some |
| impairment write-downs compared to the | | | | companies may have to stick with GAAP by |
| two-step method U.S. GAAP supports. Under the | | | | request of certain authorities or regulators. One |
| single-step method, write downs are far more | | | | would think regulations and authorities would |
| likely to take place. Overall, the main and most | | | | change stance as well, but for now it is uncertain. |
| important difference is the fact that IFRS | | | | Also, there will hardly be an incentive for |
| provides much less specific detail and has fewer | | | | companies to convert if they have no market |
| requirements to adhere to in reporting than GAAP | | | | incentive to prepare their statements this new |
| does. | | | | way. For example, maybe the company deals |
| The main differences in International and U.S. | | | | solely in a small domestic industry. An incentive |
| standards create certain advantages and | | | | must be created. Hopefully, once a handful of |
| disadvantages. Detail has been the key factor | | | | firms convert, all others will follow for one reason |
| that has made GAAP successful for so many | | | | or another. |
| years. Eliminating required specifics may cause | | | | Overall, the idea of instituting a worldwide set of |
| uncertainty and distrust in auditing and more | | | | standards is a bold and well thought out idea. If |
| fraudulent scandals in the accounting world. | | | | properly implemented, the global accounting |
| Stockholders and lenders may lose faith as a | | | | language could entice foreign investors and create |
| result of this with full detail not being shown. | | | | a greater interest in our economy possibly |
| Frightening enough, this could affect many other | | | | providing a stimulus. The advantages and |
| areas of our economy. I have never heard of | | | | disadvantages are quite clear; the only thing left |
| anyone wanting to invest in something they do | | | | to do is complete a global transformation. If IFRS |
| not know almost every piece of information | | | | fails and GAAP is readopted, economic instability |
| about; the rock investments have been made on. | | | | may result. Certainly no one wants to invest in an |
| To put it in perspective, the 'book' on Generally | | | | unstable market. |
| Accepted Accounting Principles is almost ten | | | | |