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International financial reporting standards are the accounting standards developed by the international accounting standard board. These standards are quickly becoming the global standard for the preparation of different public financial statements. The IASB is a body that sets the accepted accounting principles in the United States (Ewert and Wagenhofer 1101). The organization follows a strict and continuous analysis, working together with other national accounting standard setters around the world to come up with the accounting standards. This essay will address the reasons as to why the United States is not adopting the IFRS and the analysis of advantages and disadvantages of the accounting standards. It will also try to answer some of the fears that the U.S. based companies have in relation to the adaptation of the IFRS.
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People think that the United States will probably adopt the international accounting standards in the nearest future. The adoption of these standards will, in turn, help to ensure the accounting principles are standardized all over the world (Schipper 61). There is a notion that these international norms can make comparisons between the U.S. financial data and the foreign companies. Consequently, this will be helpful to investors, and they are also helpful to companies in raising the capital more easily in a lot of countries. People also say that these accounting standards can make the accounting rules simple and, therefore, reduce the corporate accounting with compliance costs in time (Ewert and Wagenhofer 1102).
The Internationally Accepted Reporting Standards
The response to the worldwide need for regulators, investors and investors for a set of worldwide accepted accounting standards. A lot of countries have proceeded to allow public companies to use the internationally accepted reporting standards (McEnroe 137). These standards are established by the international accounting standards board, whose headquarters are located in London. Bodies like AICPA believe that if the United States can adopt the set of high quality worldwide accepted accounting standards; it will have a subsequent benefit in the financial market and public companies (Hines 251). The benefits will come from the fact that the rules will once enable the preparation of reports that are transparent and comparable globally. The AICPA is prepared to provide the accounting industry with the necessary tools and information they need. These tools include the websites, which can be used to assimilate and, subsequently, implement the new standards (Richardson and Eberlein 217).
The body is involved in different dialogues and researches to find the best way in which the United States will be able to adopt the new set of standards. The carried out research proved that an estimated five years are going to be needed, so that the new standards can be integrated into the public companies and the accounting profession at large. Provided that some key objectives are accomplished, AICPA has prompted the SEC to set a date that the standards will be integrated into accounting industry (Murphy 121).
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The AICPA totally supports the union of the specific accounting standards between the United States and the IFRS. This standard will be the set of accepted norms of accounting principles. They are supported because they have an objective of completing a substantial amount of work between the bodies involved in the integration of standards (The Financial Reporting Policy Committee et al. 175). The AICPA is also pushing for an independent funding mechanism for the IFRS body (Richardson and Eberlein 220). They have, therefore, moved forward to try and convince the SEC to use a part of levy on the U.S. public firms for the accounting standard setting procedures as the U.S. funding assistance to the IASB (IASPlus).
This notion that the accounting rules are going to make better the things easier in accounting has brought about a lot of discussion among the accountants and other parties. However, some factors have prompted the United States to integrate the IFRS. It has become very hard for the businesses, finance and the capital markets of countries around the globe to accept the different account standards (Murphy 121). This is one of the reasons as to why the IFRS has, in turn, been integrated into some countries’ accounting industry. The United States has remained to be the only large nation that has not committed to the IFRS. Since the financial statements, coupled with the accounting statements exist to benefit investments around the world. Therefore, there is supposed to be a set of global financial rules, existing under a set of international accounting standards. These rules will, in turn, ensure that the investors can make the financial comparisons they need to be more informed (Schipper 120).
Advantages and Disadvantages of IFRS
The current U.S. accounting standards are seen as bogus, since they do not produce the desired effectiveness. This shows how the United States needs to employ the internationally accepted accounting standards in their financial field. Such an instance can be further explained by the fact that the U.S. investors are involved in buying the foreign stocks in the foreign markets (The Financial Reporting Policy Committee et al. 175). It can also be viewed that more global countries are buying and selling their shares in the United States. Moreover, foreign investors are also involved in buying a lot of the U.S. stocks. From the performed analysis, it shows that the U.S. investors occupy more than four trillion dollars in foreign investments. The foreign investors also own the same amount of stocks in the United States. Adding up these figures, we get almost half of the U.S. (GDP) gross domestic product. This goes on to show what is at stake, if matters are not taken seriously (Murphy 123).
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Although the IFRS may have its disadvantages, it is clear that the advantages outweigh the disadvantages. This is another reason, as to why the United States must consider adopting them into their accounting industry. First of all, the availability of uniform and concise accounting standards will subsequently lead to the emergence of a common accounting language, which, in turn, makes the comparison of financial results for the investment analysis to be easier (Erhardt). Moreover, the IFRS can ensure that the allocation of capital is globally easier and efficient. The accounting standards also ensure that the accounting rules are made more comfortable, and errors are considerably minimized. The rules also allow the reduction of costs, which result from multinational countries in need of producing versions of the reports for investors to use (IFRS).
Research done on the IFRS and the United States GAAP has shown that there is a significant impact on the key performance metrics (Erhardt). To ensure that the IFRS standards are accepted and adopted in the United States, the bodies are concerned with finance and accounting in the country; there is the need to issue a set of norms that are reasonable and people will, in turn, agree with them. The people will agree with their different viewpoints and they will not compromise with some crucial accounting principles. Once they have done this, the people affected will have to accept the standards entirely (Hines 252).
The IFRS portrays different disadvantages; hence, the reason as to why it has not been integrated by the United States, one disadvantage is the fact that the IFRS supports FIFO, which means first in first out method of accounting for inventory. For the U.S. companies to switch from LIFO, which means last in first out to the new method FIFO, companies will pay higher taxes. Hence, this is one of the reasons why the United States does not want to adopt the IFRS. Moreover, the IFRS standards promote the earnings of firms that are based in Europe; in turn, this tampers with the ability of investors to make a valid analysis of financial statements of the companies in the United States and the businesses in Europe (McEnroe 150).
It is important to ensure that the IFRS appeals to the United States based companies; there may be the need for legislation to eliminate the Tax impact on FIFO. To be able to enforce the IFRS rule, there has to be one body, which will be given the responsibility of ensuring that the rules are globally applied. Another reason as to why the United States remain adamant in adopting IFRS is because using similar accounting standards worldwide will mean that the synthesis of different cultures, various legal processes and different regulatory and economic priorities, which are not something that can be easily handled. This, in turn, makes it harder for the United States to accept the internal accounting standards as the superior standards to be used globally (Schipper 70).
The U.S. based companies are also afraid that the implementation of the IFRS will not save many, as it is set to; this is because, even though it saves money in the long-term, however, the companies are bound to lose the money in the long run. For the large companies based in the United States, changing over to IFRS, will require spending a lot of money in the process. However, to counter this disadvantage, the IFRS will also save money for companies, since with its integration into the accounting field, it will lead to ensuring that the U.S. market becomes competitive, and it will also ensure that there is an efficient capital flow worldwide (Hines 255).
Even though it is clear that the U.S. based companies are afraid of the IFRS due to some specific reasons, the advantages of IFRS outweigh its disadvantages. It can, therefore, be concluded that the international accounting standards are still the best solution, and the United States should adopt them in their financial and accounting sectors. The fact that the companies are afraid of some factors about the IFRS that can be changed with proper legislation means that the government should consider, working on the issues so that the companies can be comfortable with the IFRS.
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