Issues In Acceptance Of International Financial Reporting Standards By The United States

Introduction and Background

Issues in acceptance of international financial reporting standards by the United States

An article written by Mr. Alex Bogopolsky concludes that United state is reluctant to the adoption of International financial reporting standards (IFRS) in place of United State generally accepted accounting principles (US GAAP) (Bogopolsky 2015). IFRS are issued by international accounting standards board. Various countries of the world provide their acceptance for the adoption of these standards in place of the standards issued by the country’s accounting standard issuing authority. On the other hand, United States seems to be far away from the acceptance of these standards in place of their US GAAP. This report is written for making a critical analysis or the view explained above in the article of Mr. Alex Bogopolsky.

Benefits to the country come with the adoption of IFRS

IFRS help a country in copping up with the other countries already accepted these standards in helping the investors in making various comparative analyses with the financial statements of the organization. If a united state will adopt the IFRS in place of US GAAP then the country will get following advantages,

1. Adoption of these standards results in more comparability of financial statements. If a country adopts these standards then country’s organization’s financial statement will become comparable to the financial statements of organizations of other countries which already adopted these standards (Hail, Leuz & Wysocki 2010). In the same way, if United States will adopt the IFRS in place of US GAPP then country’s organization’s financial statement will become comparable to the financial statements of organizations of other countries which already adopted these standards.
2. More comparability of financial statements helps in confidence-boosting of the investors regarding the accounting standards and various auditing standards used by the organizations in the country (Parker & Nobes 2012).
3. Multinational companies operating in the country will become free from the preparation of financial reports by following various standards.
4. In present taxation authorities of the country facing trouble in profit calculations regarding the multinational companies operated in the country. This trouble of tax authorities of the country will also reduce by the adoption IFRS in the country. It is expected that the adoption of International standards will result in abolishment of the trouble of tax authorities incurred for calculations of profit earned by such companies in the other countries not following US GAAP.
5. In addition to this adoption will help the countries operated in the country in getting global ratings from the global credit rating agencies.

Costs to the country come with the adoption of International financial reporting standards

There are various advantages of adoption of IFRS for the country like the United States because in this country there are various multinational companies and international investors. However, the country is not in favor of the adoption of IFRS because of some huge costs. Some of them are discussed below,

IFRS are issued and governed by an international body, international accounting standards board. On the other hand, US GAAP is issued by United States security exchange commission. United States security exchange commission is a body under the control of the country and also prepares US GAAP on the basis of own discretion without any international interference. However, adoption of IFRS’s in place of US GAAP’s will inferior the control of the country on the standards on which organization preparing financial statements in the country (Ehoff & Fischer 2013).

In addition to this, the standards for preparation of financial reports will issue and amend by the international accounting standards board i.e. international body and not the United States security exchange commission i.e. country’s internal body.

Adoption of IFRS in place of US GAAP will also create political issues in the country. In addition to this sometimes IFRS may become biased for any country and unfavorable to other. Adoption of IFRS will result in facing such partiality of the international accounting standards board. This also has the possibility of preparation of unfair accounting standards.

The change in accounting standards of a country involves a huge cost for the companies in the country for training purposes of the employees for teaching and making them expert in dealing with the new accounting standards. In the same way, if United States will apply new accounting standards i.e. IFRS in place of US GAAP then companies of the country will face this expense. In addition to this, change in accounting standard to IFRS in place of US GAAP will require huge expenses of the country. As per the estimation United states will need to make expenses of five trillion in the adoption of IFRS in place of US GAAP (Massoud 2009).

Conclusion

Hence this discussion concludes that the US is in favor to have single accounting standards over the globe but not in favor of losing control on the power of formation of accounting standards, making huge expenses and facing political issues. Hence the country is resisting in the adoption of IFRS in place of US GAAP.

Bogopolsky, A 2015, Does IFRS have a future in the US? IFAC, viewed 28 April 2018, <https://www.ifac.org/global-knowledge-gateway/business-reporting/discussion/does-ifrs-have-future-us>.

Ehoff, JC & Fischer, D 2013, ‘Why the SEC is delaying adoption of international financial reporting standards.’, he International Business & Economics Research Journal, vol 12, no. 2, p. 223.

Hail, L, Leuz, C & Wysocki, P 2010, ‘Global Accounting Convergence and the Potential Adoption of IFRS by the United States: An Analysis of Economic and Policy Factors’, Accounting Horizons, vol 24, no. 3, pp. 355-394.

Massoud, M 2009, ‘ The Road to International Financial Reporting Standards (IFRS): Opportunities and Challenges’, Claremont McKenna College, Claremont.

Parker, R & Nobes, C 2012, Comparative International Accounting, Pearson Education Limited, Essex, England.

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