IFRS - Accounting Essay example

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MEMORANDUM September 04, 2013

To: GC Upper Management
Subject: IFRS Adoption

This memo is in response to management questions concerning the possible International Financial Reporting Standards (IFRS) adoption in the United States and its implications to the company in the next couple of years.
Currently US companies that are required to report to the SEC are required to report in US GAAP. However, international public companies that sell securities in the US can report in IFRS, and are not required to provide formal reconciliation between IFRS and US GAAP.
There have been a number of countries adopting IFRS as their accounting standards. There are multiple benefits in harmonizing and adopting IFRS as the accounting standards. According to Sir David Tweedie, former chairman of the International Accounting Standards Board in London, “the growth of the global economy means eventual evolution of common system of regulation, auditing and accounting” (Iwata). It also meant that “an investor can take financial statements and set them up against each other to compare” (Floyd). However, this transition to IFRS could be very costly, “the costs would be determined largely by the size and nature of the respective company. “While the initial cost to identify and quantify the differences between U.S. GAAP and IFRS, staff training and implementing IT support could be significant, the conversion also could result in an ultimate reduction of costs for capital and financial reporting related to operations.” (AICPA). Also, there is no enforcement with IFRS if compared to US GAAP that has several organizations such as the SEC that watches over its accounting rules. “There isn’t a global organization such as the SEC that watches over the international standards” (Albrecht). This could cause a problem and uncertainty with those financial statements. “Various parts of the world will be playing by different rules and there will never be enough consistency” (Albrecht).
The SEC released a road map to the transition of US GAAP to IFRS for US public companies, in order to set a time-frame for companies to be prepared for IFRS standards,
“under a staged transition, IFRS filings would begin for large accelerated filers for fiscal years ending on or after Dec. 15, 2014. Remaining accelerated filers would begin IFRS filings for years ending on or after Dec. 15, 2015. Non-accelerated filers, including smaller reporting companies, would begin IFRS filings for years ending on or after Dec. 15, 2016.” (Journal of Accountancy). However, in July 2012 the SEC staff issued its final report regarding the Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers. The Staff report does not include a final policy decision as to whether IFRS should be incorporated into the US financial reporting system, or how such incorporation should occur. Nor does the Staff report provide an answer to the threshold question of whether a transition to IFRS is in the best interests of US capital markets and US investors. (PWC).
While there are different opinion about IFRS adoption or conversion between both standards, IFRS has become more important on the International scenario and therefore if GC plans to be a competitive company
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