If corporations want to stay successful, they need to find new ways of expanding their market. Lots of big corporations have already globalized, and many more will follow. If these companies are globalizing, it would make sense to have globalized accounting systems.
Currently, companies in the US use generally accepted accounting principles (GAAP) to report their financial statements; while the rest of the world use international financial reporting standards (IFRS). The U.S. Securities and Exchange Commission plans to switch from GAAP to IFRS in the near future.
While the transfer from GAAP to IFRS will take some time, the SEC is optimistic that most of the major US companies will follow IFRS by 2014. The European Union, which is made up of twenty seven countries in Europe, has already moved to IFRS from 2002 to 2005 with a fairly steady and smooth transition. US companies can learn from the problems their EU competitor’s had to deal with when they made their transition, to make their change even easier. There is also a difference between adopting IFRS and converging to IFRS. Adopting IFRS means that companies are required to use IFRS to file their financial reports, while converging IFRS means that the International Accounting Standards Board (IASB) would work with Financial Accounting Standards Board (FASB) to create a set of compatible accounting standards over a period of time.
This switch is important because consistency and comparability are some of the qualitative characteristics of accounting information. It’s easier to compare different companies from around the world if everyone decided to use the same reporting standards. Benchmarking with global competitions is an important part in making the business grow. Investors also benefit from this, since they are able to compare apples to apples on financial statements.
With this big change in reporting standards, there are some criticisms. One of the biggest concerns about the IFRS is that there are very little to no enforcement. While GAAP is enforced by the US SEC, there is no international securities and exchange commission to watch over IFRS. People argue that the new standards are weak without administration to control it. Another criticism is that many companies that proclaim they follow IFRS are not totally compliance with IFRS. Some countries modify their standards from the IFRS to accommodate their interests, companies who are using IFRS range from thirteen to one hundred percent compliance to IFRS. Some companies state that the cost of switching from GAAP to IFRS doesn’t outweigh the benefits of IFRS. The costs come down to retraining accountants as well as investors to get comfortable with IFRS. The change will also affect college level courses, if there isn’t enough time to reform the curriculum, there may be a shortage in accountants that are failure with IFRS. They see no reason to switch because many still see GAAP as the golden standard in accounting reporting.
No matter what people think, it seems like the US SEC has made up their mind to make the IFRS mandatory for big, global companies. It is clear that many of the disadvantages of IFRS are just short term, for example the costs of transition; while the advantages are long term. Whether they are able to accomplish it in the current deadline of 2014 is another thing.
Article Source: http://EzineArticles.com/?expert=Z_Yin