3 Several of their convergence projects are scheduled for completion by the second quarter of 2011, including those relating to: These costs will burden small to medium sized companies that lack the capital and resources that large MNCs possess. For over the past decade, there has been a growing demand in the corporate world for U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) to converge to form one set of universal accounting standards. Does Having A Sauna Increase The Value Of Your House? Replacing GAAP standards with IFRS accounting standards will enable interested users of financial statements to make more informed decisions. Bolt-Lee, C., & Smith, L. (2009, November 1). According to a global fraud report issued by Kroll Inc. for 2012-2013, American and European companies have a higher rate of fraud (60% and 63%, respectively) compared to global averages (“Global Fraud Report”, 2013). Intermediate accounting (14th ed.). It improves the ability of investors to compare investments on a global basis and thus lowers their risk of errors of judgment. “Under the present system, the SEC attempts to ensure uniformity and consistency in financial reporting. (International GAAP, 2010). Galuszka, P. (2008, August 28). Retrieved September 19, 2014. Hoboken, NJ: Wiley. 2. . In addition, users of financial statements must be knowledgeable in both GAAP and IFRS to completely dissect the financial information reported by multi-national corporations (MNCs). Kieso, D., Weygandt, J., & Warfield, T. (2012). In other words, IFRS is open to more interpretation than rules based GAAP, and can lead companies to release fraudulent representations. The convergence to IFRS has improved the comparability of financial statements in the EU. The question should be asked about why to push for convergence in the first place. The Association of Chartered Certified Accountants (ACCA) has published a report summarising research on the impacts of the convergence with International Financial Reporting Standards (IFRS) in China. According to Matthew Birney, a manager in the financial reporting department responsible for International Financial Reporting Standards at United Technologies says some of the positives to IFRS is access to a wider talent pool (Krell, 2009). (2010, January 1). Convergence Indian GAAP to IFRS is expected to result in several benefits to Indian entities. By encouraging the international investors to invest, it leads to more foreign capital flows to the country. International Financial Reporting Standards (IFRS) or the alignment of the national standards with the IFRS and to establish some benefits and obstacles met during this process. 2012 / 2013 KROLL GLOBAL FRAUD REPORT SURVEY. The U.S., the largest economy in the world, has included both adoption and convergence as potential strategies to achieve international accounting harmonization. We also find that convergence increases the comparability between matched German firms It focuses on “checking the boxes” more than portraying an underlying economic reality” (Thompson, 2009). “Rules-based accounting has not worked in practice. After convergence, these companies can use IFRS company-wide, reducing or eliminating the amount of duplicated accounting efforts required. Convergence would mean bridging the gap between the two, i.e the IFRS an… We study the ex ante stock market reactions to events leading up to China’s convergence to International Financial Reporting Standards (IFRS). <>>> Perhaps the most notable advantage relating to convergence lies in the unifying effect of allowing U.S. companies to use international principles. The report finds that IFRS convergence in China has been beneficial where companies have had appropriate legal, governance and commercial incentives to provide high-quality … The execution of International Financial Reporting Standards ( IFRS ) has developed in answer to the demand to go towards planetary accounting criterions. Other benefits of SMEs applying the IFRS for SMEs are that the financial reporting is done in a consistent manner and not too expensive to prepare (Nazatul Izma, 2010). Convergence vs. comparability. Principles-based standards allow more leeway as to how corporations can portray their financial performance (Galuszka, 2008). (adsbygoogle = window.adsbygoogle || []).push(); http://www.wiley.com/WileyCDA/Section/id-403632.html, What’s in a Name – WTC and the Ironman Brand, Important Considerations When Driving International Business Growth And Expansion, Auto Lease Termination – 4 Ways to Get Out of Your Auto Lease, Strategic Square – Whether or Not Marketing is a War, 3 Things to Consider Before Sharing Condo Ownership With Friends and Family, Business Coaching Internship – Interning As a Business Coach, How to Generate Money Via the Path of Least Resistance. Retrieved September 18, 2014. Benefits of the Convergence to MFRS - Free download as Word Doc (.doc / .docx), PDF File (.pdf), Text File (.txt) or read online for free. The project, which is being done jointly by FASB and IASB, grew out of an agreement reached by the two boards in October 2002 (the 'Norwalk Agreement').The IASB-FASB con­ver­gence project was of par­tic­u­lar im­por­tance as: 1. yoyo After a decade of debate, the standard-setting bodies published divergent lease reporting standards — ASU 2016-02 and IFRS 16 — in 2016. In the U.S. the Security and Exchange Commission (SEC) has the power when it comes to accounting standards. Retrieved September 20, 2014. Unlike those studies, we examine the ex ante implications of IFRS convergence in China. <>/ProcSet[/PDF/Text/ImageB/ImageC/ImageI] >>/Annots[ 21 0 R 22 0 R] /MediaBox[ 0 0 432 648] /Contents 4 0 R/Group<>/Tabs/S/StructParents 0>> �O�*����^N6��/~�������ɷ��t��ͤ:�q���L��_΋����7g��#0r?��/_��������/Ĥ�� �#�+��{��*�j'�)%}���z�ۏ�aUY5���OS���\���� ��|��H">G� � �O�I��?����f���t�z�ݮ��u|�t�8�0�^�f��ze�f��e�D���ڐ>F!�G��$��.+`�MY?_���[���8j��BOW�eV��m@""��ڶl�_�NԶ/E����^N��t�zU�#��kʶ�tZH1�BF�c]��d��m�~�,��� �B*�. It is beneficial to new and small investors. (adsbygoogle = window.adsbygoogle || []).push(); Semi-structured interviews with accounting practitioners were conducted to achieve this objective. The distinction between the two approaches lies precisely where their respective descriptions suggest: principles-based standards are based on a clear hierarchy of overarching principles, contain few or no provisions and rely heavily on the exercise of judgment as to what constitutes fair presentation; rules-based standards are characterized by several anti-abuse provisions and allow relatively less scope for the exercise of judgment in their application. Additionally, disadvantages include an increased ability to manipulate transactional accounting, increased variations in accounting approaches for similar transactions, and fewer rules to consider in determining how to account for a transaction (“Which is Better — Principles or Rules?”, 2011). There may not be a one-size-fits-all global accounting rulebook coming anytime soon. %PDF-1.5 (2013, January 1). The analysis focuses on several emerging countries with experience in IFRS implementation and it also brings forward the case of Romania, which is treated separately. Advantages to Small Companies While some of … stream Retrieved September 19, 2014. Such initiatives have consequences on the world of accounting diversity, and the standards convergence of GAAP along with the IFRS largely … IT. Retrieved September 19, 2014. Another benefit is that it will help incorporate better practices within corporate Malaysia by adopting international standards. The objective of this project is to eliminate a variety of dif­fer­ences between International Financial Reporting Standards and US GAAP. In 2002, members of the Financial Accounting Standards Board (FASB) and members of the International Accounting Standards Board (IASB) met and issued a memorandum laying out framework for the adoption of IFRS by the U.S. A major holdup in the convergence of IFRS and GAAP rests with control. Principles-based standards allow more leeway as to how corporations can portray their financial performance (Galuszka, 2008). However, while these costs may be high, they are short-term in nature and it is estimated companies will save money in the long term. 2 0 obj x��=is7��]�����-�� }dR���8�L�x-eR[��@��ČD*e����8�D�n̈́b7�w��]8�����˪�HQ 1. Known as the Norwalk Agreement, the two boards agreed to make “existing financial reporting standards fully compatible as soon as practicable”, and to “coordinate future work programs to ensure compatibility is maintained” (Kieso, 2012, p. EP-2). This article positions the United States' convergence towards IFRS as advantageous against disadvantageous. It would create a single set of accounting standards around the world. 3. . Benefits of Convergence. While the benefits of convergence with IFRS were widely acknowledged among Status of Global Convergence of Accounting Standards. Standard compositors have three options in emerging convergence of criterions. The IFRS can help new and small investors by making reporting standards to have better quality and become simpler, putting these investors in a similar position with professional investors, which was not feasible under previous standards. Source by Andrew B Johnston. As such, problems in the post application periods cannot be denied and moreover, the types of such problems cannot be forecasted for certain, at this point of time. Adopting a principles based approach to accounting will allow preparers of financial information to more accurately portray financial performance relative to the operations of the company. 4 0 obj Although the two boards have made significant progress, efforts to converge critical accounting standards — such as those dealing with revenue recognition, financial instruments and leases — have been challenging and time consuming. Thompson, R. (2009, September 14). Retrieved September 18, 2014. International GAAP. Critics against the adoption of IFRS in the United States argue principle based accounting standards leave too much of a judgment call in the hands of the preparer. Pros and Cons of IFRS. The documented benefits include a lower cost of capital for some companies and increased investment in jurisdictions adopting IFRS Standards. Changing accounting standards to be open to greater interpretation may attract higher cases of internal, or company fraud. According to a survey of corporate executives, many of them listed IFRS and principles-based standards as “more intuitive” and “easier to use” than their GAAP counterpart. IFRS tries to curb this problem through greater interpretation of the accounting principles. One benefit to IFRS is standards that are based on principles, unlike GAAP which relies on rules-based standards. While Japan has committed to the convergence of Japanese generally accepted accounting principles (J‐GAAP) with IFRS it has not as yet formally adopted IFRS. There may appear to be some obvious reasons why convergence between IFRS and GAAP has been brought up as a possibility. 3 0 obj Some countries are working with the International Accounting Standards Board (IASB) to converge their own standards with IFRS. %���� Research also suggests that these costs and benefits will vary across firms and will be difficult to trace upon adoption” (Bolt-Lee, 2009). Using IFRS allows a company to use judgment to best represent financial performance, and increase comparability among companies with similar transactions over different industries. IFRS, being principle based standards, are expected to provide many benefits in different ways to economy, companies/industries and investors. Under rules based accounting, it is sometimes the case that a “transaction must be accounted for in accordance with the rule even if the applied accounting is misleading” (“Which is Better — Principles or Rules?”, 2011). In an increasing globalized economy and workforce, hiring may no longer be restricted to hiring new applicants within the country’s borders. The literature consistently shows that the benefits of mandatory IFRS convergence are concentrated in countries with stronger legal enforcement and investor protection. Convergence with IFRSs also benefits the accounting professionals in a way that they are able to sell their services as experts in different parts of the world. Top Reasons Why Some Pressure Washing Businesses Fail Within the First Year, 8 Personal Qualities of a Entrepreneur – from a South African Perspective, CosmoProf Offers High End Beauty Without High End Prices, My Million Dollar Online Marketing Mistake, Everything’s Different, Nothing’s Changed, 10 Qualities Of A Successful Entrepreneur, 5 Reasons to Build Authentic Trading Rooms in a Finance College, Why Consumer Spending Matters to the Economy. endobj According to research, the benefits to U.S. investors may not exceed costs. Currently, “over 115 countries have adopted IFRS, plus the European Union now requires all listed companies in Europe (over 7,000 companies) to use it” (Kieso, 2012, p. EP-2). <> endobj They are made to suit the Indian companies and the disclosure requirements of the Indian government. 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. Convergence with IFRS will result in high quality, transparent and comparable financial statements that are based on modern accounting principles and concepts that are being applied in global markets. Another disadvantage to IFRS is the cost expected to be associated with transitioning from GAAP based standards and accounting information systems to IFRS based accounting information systems. We do so by analyzing the stock market reactions to important events leading up to China’s convergence to IFRS. Critics argue that the present U.S. system does not produce accurate reporting. of benefits (e.g., He, Wong, & Young, 2012; Liu, Yao, Hu, & Liu, 2011). The advantage to find here is an increase in transparency, which would then allow for more accessible cross-border investments. International Financial reporting standards (IFRS) and General accepting accounting principles (GAAP) convergence issue began in the late 2000’s. Indian Accounting Standards are formulated by the Accounting Standard Board (ASB) of the ICAI as notified by the Ministry of Corporate Affair. Adopting IFRS will, in the long-term, help to reduce cost. Promoting Your Online Business With Article Marketing, State Run Capitalism Is Not the Answer to Being Competitive In the Global Market Place. <> I believe that this is a small price compared to the resultant benefits. As global business environments improve, it is inevitable that one set of accounting standards is needed. No major global convergence projects are currently on the FASB’s agenda. Krell, E. (2009, April 6). Abstract. Biggest IFRS Cost? 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