January 21, 2014 | Jaclyn Felder-Strauss
What is under consideration regarding IFRS?
IFRS (International Financial Reporting Standards) is extremely relevant currently in the United States to domestic public companies although in the near term the use of IFRS is not required. A change requiring the use of IFRS is under consideration. Depending on the size of a company, its geographical location, the industry it operates in at M&A activity all companies will be affected. The impact of accounting changes resulting from the FASB’s and IASB’s joint efforts will be significant and will have broad-based implications.
Why the proposed change from GAAP to IFRS?
There are many reasons that the changes have been proposed. The three most obvious include the desired simplicity for comparison of financial statements, one international language that all can understand, and the allowance it provides businesses to stay competitive and relevant as markets globalize. An important concept in accounting that we must follow is consistency, which is as important as comparability; hence, the need for one set of global standards followed by all. Business is becoming more and more global rather than strictly domestic as we continue to evolve. This global set of standards will allow the United States to become part of the global economy in the most efficient way when it comes to financial reporting.
Should we stay with GAAP or go to IFRS?
The European Union has already switched to IFRS and the same year the U.S. companies have their deadline to switch over, “…China, India, Japan, and Canada also are scheduled to make the switch” (Johnson). Switching to IFRS will help companies, investors, and the public globally compare their financial statements more easily. “By adopting IFRS, a business can present its financial statements on the same basis as its foreign competitors, making comparisons easier” (American Institute of Certified Public Accountants). Even the Chairman of the SEC, Christopher Cox, agreed with the fact that financial statements need to be comparable worldwide by stating, “an international language of disclosure and transparency is a goal worth pursuing on behalf of investors who seek comparable financial information to make well-informed investment decisions” (Maryland Association of CPAs).
Some, however, do not agree with the proposed change for reasons such as the level of uncertainty involved, the fear that there is not an appropriate infrastructure in place to enforce the regulations, and the difficulty in comparing statements. It raises uncertainty because international financial reporting standards permit managers to exercise their own judgment when deciding what to report in their financial statements (Albrecht). What do you think about the proposed change? Take a look at some articles written on the topic and make your case. Clearly, all accounting professionals have put a stake in the ground and made their decision. What will yours be? I certainly have made my decision!
Wade, Jared. Risk Management Magazine, Moving from GAAP to IFRS, online at http://www.rmmagazine.com/2013/02/09/moving-from-gaap-to-ifrs/ (February 9, 2013).
Jaclyn Felder-Strauss is a full-time faculty member at Purdue Global. The views expressed in this article are solely those of the author and do not represent the view of Purdue Global.