Essay about International Financial Reporting Standards and Accounting Standards Board

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Charles Vorsteg
Acct 302- 511
Fall 2014

International Convergence

In a day and age when more and more business is done online and on a global level, it has become easier for many businesses to grow beyond their own country’s boundaries. International convergence is a concept that is aimed at making global trade easier for all parties involved. The basic idea is to come up with a global standard of accounting to make sure that businesses across the globe can communicate, on a financial level, much easier. Imagine the IASB, international accounting standards board, setting a universal standard used throughout the world instead of having a separate standard like the U.S. GAAP, generally accepted accounting practices, used here in the United States. The merging of these two accounting standards, and many others from nations around the world, is what is called international convergence. Now, international convergence is not a new idea. The financial accounting standards board, FASB, is responsible for setting the accounting standards for the private companies in the United States. The FASB has been working with the IASB since 2002 (FASB). At their first meeting they released a document titled “The Norwalk Agreement” which outlines their goals to set, and put into practice, an international standard that is more “compatible” (FASB). Hopefully with this joint effort from both boards, these two standards will become more easily interchangeable as well as becoming stronger and more precise on their own. While there are arguments against international convergence, the arguments for it, are quite simple and to the point. In the article “The Impact Of Combining The U.S. GAAP And IFRS”, author Dr. Nicolas Pologeorgis, lists four major arguments for convergence. He stated that “renewed clarity, possible simplification, transparency, and comparability between different countries on accounting and financial reporting”, are all strong reasons to work for convergence (Impact). While clarity and simplification are very similar, making standards easier to understand and making statements easier to create should be an ongoing goal of any accounting standards board. Transparency should also be a goal of any nation that wants to have businesses grow on an international level. At its core, transparency is the goal of free flowing information from a company to its investors. A global standard of reporting would make it much easier for investors to understand and interpret financial statements, allowing for easier financial decisions. Lastly comparability would also allow for simpler business transactions. In a company in Japan is considering acquiring an American company, it would be much easier to compare the two companies if they have a single standard for accounting. Dr. Nicolas Pologeorgis explains that there are two arguments against international convergence. The first is that some countries are too stubborn to conform to a worldwide standard, because of differences in culture, politics, and economic systems (Impact). A county that doesn’t have a capitalist economic system could have a hard time adhering to a standard agreed upon by several capitalist counties. The second argument is that it will take too long to truly put these standards into practice around the world (Impact). While it is already a daunting task to come up with a complete and compatible accounting system that is accepted worldwide, it will/would be very time consuming to make sure that every company switches to it. This could take years for some countries or companies to change their accounting practices. While the joint project of the FASB and IASB are working on several areas including; revenue recognition, leases, financial instruments, and insurance, this paper will focus on their work on revenue recognition. A company’s revenue is a very important indicator, used to analyze its current status and its possible future (FASB). Today the
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