Name: Long Pham
Course: Acc 420
Date: 09/30/13
Writing Assignment 1

The convergence of financial reporting and accounting standards is a valuable process that contributes to the free flow of global investment and achieves substantial benefits for all capital markets stakeholders. It improves the ability of investors to compare investments on a global basis and thus lowers their risk of errors of judgment. It facilitates accounting and reporting for companies with global operations and eliminates some costly requirements. It has the potential to create a new standard of accountability and greater transparency, which are values of importance to all market participants including regulators. It reduces operational challenges for accounting firms and focuses their value and expertise around an increasingly unified set of standards. It creates an unprecedented opportunity for standard setters and other stakeholders to improve the reporting model. Convergence is a long-term process. While it may take years to reach the important goal of a single set of standards, progress has already been achieved.
Current accounting and reporting practices fall short of meeting the information needs of the capital markets in the 21st century. A critically important element in the solution to this problem is the convergence of US GAAP and IFRS, a process now under way at an early stage. The goal is an improved reporting model built on principle-based standards that can be applied in a cost-effective manner. The convergence of accounting standards is a matter of decisive strategic importance to the future of global capital markets. High quality Information is essential to high quality markets. All stakeholders who rely on high-quality markets need to understand the issues surrounding convergence, form a point of view and take the time needed to participate in the global debate. There are many different stakeholders, such as investors, corporates, securities exchanges, lenders, accountants and auditors and market information packagers. Every stakeholder stands to gain from active participation in shaping the successive phases of the convergence process.
The convergence and subsequent change of accounting and reporting standards at the international level impact a number of constituents, including corporate management, investors, stock markets, accounting professionals and accounting standards setters and agencies. Corporate management will benefit from simpler, streamlined standards, rules and practices that apply to all countries and are followed worldwide. The change will afford corporate management the opportunity to raise capital via lower interest rates while lowering risk and the cost of doing business. Investors will have to re-educate themselves in reading and understanding accounting reports and financial statements following the new internationally accepted standards. At the same time, the process will provide for more credible information and will be simplified without the need for conversion to the standards of the country. Further, the new standards will increase the international flow of capital. Stock markets will see a reduction in the costs that accompany entering foreign exchanges, and all markets adhering to the same rules and standards will further allow markets to compete internationally for global investment opportunities. The shift and convergence of the current standards to internationally accepted ones will force accounting professionals to learn the new standard, and will lead to consistency in accounting practices. The development of standards involves a number of boards and entities that make the process longer, more time consuming and frustrating for all parties involved. Once standards have converged, the actual process of developing and implementing new international standards will be simpler and will eliminate the reliance on agencies to develop and ratify a decision on any specific standard. While few may doubt that the correct focus of regulation is to maximize investor protection in a cost-effective manner, legal and regulatory frameworks and cultural histories surrounding financial
Reporting vary greatly across territories. Some long-standing accounting and reporting practices may be hard to overcome in certain territories: even after territories adopt IFRS, their traditions may influence how they interpret and apply standards. For example US GAAP, while based in sound principles, has evolved into a complex framework of detailed rules and bright-line. It is also true that regulatory and enforcement practices vary greatly among territories. Reform of the legal and regulatory environments, insofar as they unduly impede convergence, will be a long-term, challenging process. Broadly speaking, key stakeholders need to evaluate the regulatory and legal frameworks in which the standard setting process is embedded in order to make convergence toward principle based standards a realistic, workable reality. Global regulators must be encouraged to collaborate to ensure that significant divergences do not occur. Arguments for the convergence are renewed clarity, possible simplification, transparency and comparability between different countries on accounting and financial reporting. This will result in an increase of capital flow and international investments, which will further reduce interest rates and lead to economic growth for a specific nation and the firms with which the country conducts business. Timeliness and the availability of uniform information to all concerned stakeholders will also conceptually make for a smoother and more time-efficient process. Additionally, new safeguards will be in place to prevent another national or international economic and financial meltdown. The vision of convergence in accounting world may inspire many minds but in the practical field it is a very formidable task. Many of the initial hurdles have been overcome and much progress towards convergence of accounting principles and procedures among countries has already been achieved. Convergence initiatives are now working much more effectively than ever before. Differences are still there but they are narrowing. It is expected that the pace of progress in the sphere of convergence will accelerate further in the coming years.