...1. Describe what accounting convergence means and assess the likelihood of the convergence being completed and implemented in the next five (5) years? Accounting convergence is a process or goal to establish one set of accounting standards that can be used internationally by attempting to eliminate the differences in the International Financial Reporting Standards (IFRS) and the US Generally Accepted Accounting Principles (US GAAP). Convergence also seeks to establish understandability amongst users and enforceable by regulators (Erchinger, Melcher, 2007). The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have been trying to implement a global acceptable standard for financial reporting since the end of 2002 onwards (Fogarty, 2011). However to this day in 2013 the convergence of both IFRS and US GAAP has yet to be completed and implemented. The likelihood of the convergence being completely finished and implemented seems possible but yet so far as both the IASB and FASB have already been trying for ten years to get it completed despite the hurdles they have endured. In November 2007 the Securities and Exchange Commission (SEC) voted 4-0 in favor of eliminating the requirements that forces foreign companies with U.S listings to reconcile their results with to U.S GAAP therefore companies with a year end of 2007 are no longer required to follow these set of principles (Fogarty, 2011). 2. Evaluate and describe the...
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...GAAP and IFRS Convergence Kenneth DeWitte Strayer University 1. Describe IFRS and GAAP and what convergence means. The International Financial Reporting Standards (IFRS) is the accounting framework used by the European Union, Japan, Canada, and other world economic leaders. The IFRS is based on the tenets of understandability, reliability, and comparability. It is based off the International Accounting Standards (IAS) and had the opportunity to be built from accounting ideas and principles used across the world. In recent years it also has had the chance to look at the United States Generally Accepted Accounting Principles (GAAP) and modify the rules to enhance clarity and consistency, intentionally setting itself apart from U.S. GAAP. United States GAAP is an aggregate of rules that show how to account for transactions and also present the transactions with reliability, consistency, and full disclosure. This amounts to a level of clarity that even someone not very knowledgeable about business can make a confident decision when investing. These rules were brought together by the Financial Accounting Standards Board (FASB). It is more specific than the IFRS requiring less interpretation and more consistent action taken by all businesses, leading to comparability through financial statements. The convergence of these two accounting frameworks is a must for both foreign and domestic businesses. There are some problems between the two systems coexisting. This has led to...
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...IFRS and GAAP Convergence Mercy Hudson Strayer University I have read and understand Strayer University’s Academic Integrity Policy. I promise to conduct myself with integrity in the submission of all academic work to the University and will not give or receive unauthorized assistance for the completion of assignments, research papers, examinations or other work. I understand that violations of the Academic Integrity Policy will lead to disciplinary action against me, up to and including suspension or expulsion from the University. I understand that all students play a role in preserving the academic integrity of the University and have an obligation to report violations of the Academic Integrity Policy committed by other students. Chevron Corporation, an American multinational energy corporation is active in more than 180 countries. Chevron is one of the world’s six ‘super major’ oil companies. For the past five years, Chevron has been continuously ranked as one of America’s five largest corporations. Chevron’s headquarters is in San Ramon, California (Fox, 2012). It is engaged in every aspect of the oil, gas, and geothermal energy industries, including exploration and production; refining, marketing and transport; chemicals manufacturing and sales; and power generation. Chevron was originally known as Pacific Coast Oil Company in 1979, where they made their oil discovery in Pico Canyon north of Los Angeles, California (2012)....
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...GAAP & IFRS Convergence Eileen Walker Strayer University 3/1/2013 Professor Lightweis ACC304 By definition, convergence is the “coming together from different directions, especially a uniting or merging of groups or tendencies that were originally opposed or very different” (Bloomsbury Publishing, 2009). As it applies to accounting, convergence is the “collaborative efforts of the FASB and the International Accounting Standards Board (IASB) to both improve U.S. generally accepted accounting principles (U.S. GAAP) and International Financial Reporting Standards (IFRS) and eliminate the differences between them” (IASB-FASB Update Report to the Financial Stability Board Plenary on Accounting Convergence, 2012). While efforts towards convergence have been on-going since 2002, there still remains much to be resolved between the two entities. Whether or not convergence may be completed and implemented within the next five years remains to be seen, and will most assuredly be contingent on the resolution of several key differences. In an April 2010 report published by The Finance Professionals’ Post, some of the major differences between GAAP and IFRS were as follows: * Inventory Valuation – Last In First Out (LIFO) is permitted under GAAP, but not under IFRS. GAAP requires carrying amount at lower or cost or market while inventories reported under IFRS are carried at lower of cost or net realizable value. Companies using LIFO would have to revalue inventory...
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...The International Accounting Standards Board (IASB) was formed in an attempt to bring uniform accounting standards within international countries through its issuing of the International Financial Reporting Standards (IFRS). Today, over 100 countries including Canada, India, and Japan have adopted these standards for financial reporting. The growth of multinational companies such as Coca Cola and the increasing desire of cross-border investing have made it apparent that the U.S.accounting standards known as the Generally Accepted Accounting Principles (GAAP) issued by the Financial Accounting Standards Board (FASB) can no longer remain separate from IFRS. Under the request of the Securities and Exchange Commission (SEC), FASB and IASB signed the Norwalk Agreement, which promised the convergence of GAAP and IFRS by as early as 2015. As a result, it appears that the importance of FASB will decline as IASB becomes the primary responsibility holders of the new merging accounting standards. What advantages and disadvantages can come of GAAP and IFRS integration? Once finalized, the convergence of GAAP and IFRS will create high quality financial reporting that will be uniform amongst companies both domestic and abroad. This will allow investors to interpret and compare financial statements from domestic and foreign countries according to the same accounting standards, which will enable them to make better investment decisions.As the ease of interpretation of financial records increases...
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...Devine Hamdani 10/1/11 Project 1 US GAAP Convergence with IFRS As the business world has become more global, regulators, investors, large companies and auditing firms began to realize the importance of the establishment of a single set of high quality accounting standards. With a common accounting language around the world, investors will be able to have greater comparability and greater confidence in the transparency of financial reporting worldwide. IFRS, acronym for International Financial Reporting Standards are financial reporting standards that have been adopted by International Accounting Standard Board (IASB). Increasing number of publicly held companies in many countries are now requiring or allowing the use of IFRS for the preparation of financial statement. In the United States, the Securities and Exchange Commission (SEC) have also proposed a “Roadmap” in incorporating the convergence of US Generally Accepted Accounting Principles (US GAAP) to IFRS with the help of Financial Accounting Standards Board (FASB) and IASB. The IASB and FASB, committed to improving IFRS and US GAAP and achieving their convergence, are also committed in providing public transparency and accountability by reporting their process in achieving their goals. In 2006, the IASB and FASB began to set out their plans of completing major projects in their issued Memorandum of Understanding (MoU). These priority major projects comprises of their joint projects on financial instruments...
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...in doing their business. International Financial Reporting Standards (IFRS) and US generally accepted accounting principles (GAAP) are two main accounting principles that is widely used in the majority of the companies. However, there will be still conflict in the interpreting and understanding each other financial statements due to these two different approaches. Therefore, to overcome this problem, International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) are working on it by taking the necessary steps as time passes to close down the gap and standardised the accounting principles globally making it easier for all parties. (157 words) 1.0 Introduction In the world of globalization, a number of countries had been experiencing the convergence of their local GAAP and IFRS in order to apply the international accounting standard to suit the growing business world. This does not left out the people of the United States who are also trying to converge the accounting standards of US GAAP and IFRS in order to close down the gap between the accounting standards. FASB and IASB are the main international bodies assisting the Securities and Exchange Commission (SEC) to achieve this goal. 2.0 Benefits 2.1 Facilitate international business and economy growth There are a number of benefits that people can gain from the convergence of US GAAP and IFRS. For example, the convergence of these accounting standards will...
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...Pros & Cons of GAAP and IFRS Convergence The International Accounting Standards Board (IASB) was formed in an attempt to bring uniform accounting standards within international countries through its issuing of the International Financial Reporting Standards (IFRS). Today, over 100 countries including Canada, India, and Japan have adopted these standards for financial reporting. The growth of multinational companies such as Coca Cola and the increasing desire of cross-border investing have made it apparent that the U.S.accounting standards known as the Generally Accepted Accounting Principles (GAAP) issued by the Financial Accounting Standards Board (FASB) can no longer remain separate from IFRS. Under the request of the Securities and Exchange Commission (SEC), FASB and IASB signed the Norwalk Agreement, which promised the convergence of GAAP and IFRS by as early as 2015. As a result, it appears that the importance of FASB will decline as IASB becomes the primary responsibility holders of the new merging accounting standards. What advantages and disadvantages can come of GAAP and IFRS integration? Once finalized, the convergence of GAAP and IFRS will create high quality financial reporting that will be uniform amongst companies both domestic and abroad. This will allow investors to interpret and compare financial statements from domestic and foreign countries according to the same accounting standards, which will enable them to make better investment decisions.As the ease...
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...Advantages and Disadvantages of switching from U.S.GAAP to IFRS Nara Yoon Charles Center Summer 2009 Advantages and Disadvantages of switching from U.S.GAAP to IFRS 2 In today’s business, markets are demanding increasing conformity. Many countries have converted to and implemented the International Accounting Standards Board (IASB)’s accounting standards. The United States, however, still maintains its own Financial Accounting Standards Board (FASB). Both IASB and FASB have created International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (U.S.GAAP) respectively. These accounting standards are rules of measurements for financial statements that companies issuing stock to the public must provide to stockholders (Libby, 21). There are various advantages and disadvantages of the U.S. companies changing their systems from U.S.GAAP to IFRS. As the markets have grown to become more complex and global, the disparities between the two standards have been a significant issue as consumers and producers call for reform. The current differences between U.S.GAAP and IFRS affect many aspects of business. There seems to be some future losses but the U.S. is continuing to move toward conversion. The primary benefits U.S. hopes to get are comparability, and thus, greater market liquidity and lower cost of capital. They also hope to see cost savings for multinational companies who keep record of several accounting standards. Most...
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...The Difference between U.S. GAAP and IFRS on Revenue Recognition The Difference between U.S. GAAP and IFRS on Revenue Recognition Trade activities among world economies and the expansion of corporate America overseas have created a need for better and uniform global accounting standards. Many countries conduct businesses globally, especially with the United States. The convergence from Generally Acceptable Accounting Principle (GAAP) to International Financial Reporting Standards (IFRS) can be related to the convergence of Europe, when both entities were in search of common ground to conduct business transactions. As a result of global accounting needs, in 2001 the International Accounting Standard Board (IASB) was given the go ahead by major constituents of the world’s capital markets to develop a single set of high quality accounting standards. This crisis gave birth to the Financial Accounting Standard Board - IASB convergence program (Bahusova, 2009). IASB, along with the FASB, had an open debate in December of 2008 on revenue recognition concerning the changes in customer contract and the obligation between them and the seller. The debate focused on uniform standards for both United States companies that use GAAP and other non- foreign companies using IFRS (Mintz, 2009). The two bodies wanted to achieve continuity on revenue recognition for similar contracts, regardless of the company’s origin. This advancement would increase the quality of revenue...
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...Will IFRS and GAAP Convergence (or Adoption) work for investors? What a Switch from GAAP to IFRS May Mean for Investors Read more: http://www.foxbusiness.com/personal-finance/2011/11/28/what-switch-from-gaap-to-ifrs-may-mean-for-investors/#ixzz1t7Fuj1U9 The convergence between IFRS and GAAP has been a hot topic in the world of accounting. From defining the difference between adoption and convergence, when should the US adopt to IFRS, how should the US do it, what’s the impact for public company and private company, and the list go on and on. This article in Fox Business discusses the impact of IFRS and GAAP convergence specifically to investors. The author first discuss about how important convergence of IFRS and GAAP is to the US. Knowing how the global market is a very dynamic market nowadays with companies and firms merging, expanding and investing globally across the world, having a standard financial reporting system would be beneficial not to just investors but to all aspect of people analyzing the business plan. The SEC is working on issue a standard of procedure of educating US companies about the comparison between GAAP and IFRS along with how some foreign companies have used IFRS with SEC filings. The second part of the article discussed some issues that investors and business analyst might find in dealing with IFRS. First is the flexibility of IFRS standards compare to a strict rule of GAAP standards. The article quoted from Charles Mulford, a professor...
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...the Convergence of IFRS and GAAP on Auditors Acc 576 Auditing and Business Concepts Abstract The convergence of IFRS and GAAP continues to present professional challenges for U.S. auditors, it also presents career opportunities for auditors who encompasses the idea of globalized change. The convergence of accounting standards is changing the attitudes of CPAs and CFOs as far as internal accounting is concerned and how the quality of the International Accounting Standards will affect it and the efforts made toward converging IFRS and the GAAP standards. Create an argument for or against the IFRS and GAAP convergence process versus a pure adoption of IFRS in the context of impact to the public accounting profession. With Business and finance globalization, almost a hundred countries have adopted IFRS. Approximately 120 nations and reporting jurisdictions permit or require IFRS for domestic listed companies, although approximately 90 countries have fully conformed with IFRS as announced by the IASB and include a statement acknowledging such conformity in audit reports. Motivations for convergence include the belief that it will result in increased comparability between financial statements, which will benefit a variety of stakeholders. One would need to weigh the benefits of a one time cost for transitioning fee, the ability to compare reports, and the benefit of using a single reporting standard for businesses. Assess the cost impact for or against IFRS and...
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...“Weak Signal: Evidence of IFRS and US GAAP Convergence from Nokia’s 20-F Reconciliations” Nokia was created in 1967 through a merger and has become one of the world’s leaders in mobile communications and electronics. The Finland based company gained a lot of power through acquisitions within the telecommunication and electronic market, made around the 1980’s. The company is now specializing in four segments, mobile phones, multimedia, enterprise solutions, and networks. Nokia has ADRs (American Depository Receipts), which allow investors in the US to trade securities without having to trade in foreign capital, that are currently traded in the New York Stock Exchange as “NOK”. Company shares are also being traded on the Frankfurt, Helsinki, and Stockholm stock markets. Nokia’s first issuance of an ADR was in 1994. Since the communications market is changing and growing very rapidly, the best way to differentiate is to acquire smaller companies and share resources and knowledge. A lot of money is spent on research and development of more advanced technologies to gain a competitive advantage. Currently, Nokia has teamed with Microsoft to offer an alternative to the android and Apple’s iOS. Nokia also has a strong presence in markets such as the wireless handset and wireless infrastructure markets. According to Standard& Poors Communication Equipment 2006 Industry Survey, only Ericsson was ahead of Nokia in being the top supplier of wireless infrastructure. In the same report,...
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...Analysis of IFRS and U.S. GAAP GAAP or acronym for Generally Accepted Accounting Principles refers to the standard framework of guidelines for financial accounting used in any given jurisdiction. It is a common set of accounting principles, standards, and procedures that companies use to compile their financial statements (Investopedia). For many years, countries have developed their own accounting standards. The U.S. has always followed the U.S. GAAP while most European countries followed the IFRS, or acronym for International Financial Reporting Standard. In a sense, the U.S. had their own financial “language”, and in order to communicate with others, they needed to translate to a language they could understand. As globalization and international trade increased, such differences in the financial language caused many difficulties and problems, creating a demand for a new language that is universally accepted and understood. The convergence of IFRS and GAAP is what came of this demand. Understanding U.S. GAAP and more importantly its transition to IFRS is extremely crucial for anyone pursuing a career in Accounting or related fields. At the time of the stock market crash in 1929, there was no structure setting accounting standards. As the nation plunged into the Great Depression, there were calls for increased government regulation of financial institutions. The result was the establishment of the Securities and Exchange Commission (SEC); a federal agency that administers...
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...The road to international reporting The Convergence of GAAP and IFRS | Leroy Meadows Advanced Accounting | The road to international reporting The Convergence of GAAP and IFRS | Leroy Meadows Advanced Accounting | The Road to International Reporting The convergence of a rules-based approach and a principles-based approach in relation to accounting and the dissemination of financial information is not something to be taken lightly. With the need for convergence increasing due to globalization, there are sure to be some contentious issues that must be addressed if convergence is to succeed. While the main issue for those who use a rules-based approach is the issue of comparability, there are other issues that must be taken into account as well. This paper will provide a brief history of globalization as well as the response of the United States in the wake of massive corporate fraud between 2000-2002. The differences between a rules-based approach and a principles-based approach and some difficulties that arise when trying to merge two different systems of accounting will also be examined. Lastly, this paper will address why convergence is not only probable, but necessary. The Need to Be One The modern push for globalization has occurred in two stages. The World Trade Organization, in its 2008 report, provides a chronology of this push which shows the first stage of globalization starting in the mid-19th century and continuing until the start of WWI. The...
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