Convergence: International Financial Reporting Standards and Financial Statements Essay

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Convergence GAAP means Generally Accepted Accounting Principles which are a collection of guideline and practices used by the accounting community. In the U.S., these standards are set by the Financial Accounting Standards Board (FASB) and continually update when new accounting issues and concerns arise with GAAP (investor glossary). Outside the U.S. there is the International Financial Reporting Standards (IFRS) which are a set of accounting standards developed by the International Accounting Standards Board (IASB) that is becoming the global standard for the preparation of public company financial statements (IFRS). The goal of IFRS is to provide a global framework for how public companies prepare and disclose their financial statements. IFRS provides guidance for the preparation of financial statements, rather than setting rules for industry-specific reporting. Convergence means the occurrence of two or more things coming together. The International Convergence of Accounting Standards phrase refers to both a goal and the path taken to reach it. What does the “International Convergence of Accounting Standards” mean? It means the FASB believes that the ultimate goal of convergence is a single set of high quality, international accounting standards that companies worldwide would use for both domestic and cross-border financial reporting. The path toward that goal is the collaborative efforts of the FASB and the International Accounting Standards Board (IASB) to both improve U. S. generally Reporting Standards (IFRS) and eliminate the difference between them. The FASB believes there is high demand for international convergence by investor’s desire for high quality internationally comparable financial information that is useful for decision making (fasb.org). The FASB and the IASB has been working together toward convergence since 2002. In the Norwalk Agreement both the FASB and IASB pledged to use their best efforts to make their existing financial reporting standards fully compatible as soon as is practicable and to coordinate their future work programs to ensure that once achieved, compatibility is maintained (fasb.org). There are still major obstacles out there towards setting a single high quality international accounting standard which include cultural differences, political disturbances, varying level technological developments in different countries and differences in legal and tax systems. One of the major problems facing human race is cultural differences. Enforcing accounting standards may go against ones culture belief and might seem as an attempt to be disrespect toward the culture valve of the people. The activities of the politicians will always be towards bending regulations, laws and standards to favor them. They lobby to make the accounting standard to fit in their general plan which usually doesn’t benefit the general masses. It will be a hard task to integrate a system that is underdeveloped with an advanced system. People with less developed accounting system may resist the change and the expense it will create to make this change. The differences in both legal and tax system must be crossed before any success will be in having a single accounting standard that will live up to everyone’s exception (world accountant). I don’t know whether all these can be solved in the next five years or my life time. It would take a lot of consideration and understanding of each ones needs to come to some understanding.
Important Difference The single most important difference between U.S. GAAP and the IFRS is U.S. Generally Accepted Accounting Principles are considered more rule based and the International Financial Reporting Standards is considered more of a principles based accounting standards. Rule based accounting is basically a list of detailed rules that must be followed when preparing financial statements. Principle based accounting is used as a conceptual basis for accountants
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