Advantages and disadvantages of US convergence between GAAP and IFRS

May 23, 2018 | By admin4u | Filed in: Uncategorized.

Over the past decade, in the corporate world, demand for the GAAP and the International Financial Reporting Standards (IFRS) has become increasingly convergent with a group of universal accounting standards. In 2002, members of the Financial Accounting Standards Board (FASB) and members of the International Accounting Standards Board (IASB) met and issued a memorandum setting out the adoption of IFRS in the USA known as the Norwalk Agreement. (Kieso, 2012, EP-2.)

the United States argues that the principle of accounting principles based on the principles is to ensure that "existing financial reporting standards are fully compatible as soon as possible" and "aligning future work programs to ensure compatibility" standards leave too many judgments in the preparatory hand. In other words, IFRSs open up more interpretations than GAAP rules and may lead companies to issue fraudulent representations. Additionally, the disadvantages include manipulation of transactional accounting, increased change in accounting approaches for similar transactions, and fewer rules when determining transaction billing ("What are the Better Principles or Rules?", 2011). According to the global fraud report published by Kroll Inc. in 2012-2013, fraud by US and European companies (60% and 63%) is higher than the global average (Global Fraud Report, 2013). Changing accounting standards open to greater understanding can result in greater internal or corporate fraud

Another disadvantage on IFRS is the expected cost of migrating GAAP-based standards and accounting information systems to IFRS-based accounting information systems. While these costs may be high, they are short-term, and it is estimated that companies will save money on the long run. "Studies show that the cost of migrating to IFRSs will have a big impact, according to researches the benefits to US investors can not go beyond cost, and the continued high level of financial reporting will be low due to the high level of American GAAP. the benefits to the companies will change and it will be difficult to follow the adoption "(Bolt-Lee, 2009). These costs are burdened by small and medium enterprises that do not have large MNCs with capital and resources. According to the KMPG, most of the IFRS conversion costs are IT costs, it is estimated that 50-70 percent of the costs of typical conversion efforts are related to IT (Krell, 2009).

IFRS convergence and GAAP audited. In the United States, the Securities and Exchange Commission (SEC) is competent for accounting standards. While the FASB sets standards, the SEC oversees and ensures that state-owned companies comply with the law, practices, and act in ways that facilitate ethical conduct and decision-making. "Under the current system, the SEC is trying to ensure the consistency and consistency of financial reporting, but regulators can not enforce consistency in a principle-based system" (Thompson, 2009). If the US returns, SEC will certainly lose control and influence of accounting and reporting practices.

One of the advantages of IFRS is the principles that, unlike GAAP, are based on rule-based standards. Principle-based standards provide greater scope for companies to represent their financial performance (Galuszka, 2008). According to corporate executives, many of them adopt IFRSs and standards based on "more intuitive" and "easier to use" than their GAAP counterparts.

The difference between the two approaches is precisely: principles based on principles are based on a clear hierarchy of overarching principles, contain little or no provision, and rely heavily on judging the judgment as a fair presentation; rules-based standards are characterized by a number of anti-abuse provisions and provide relatively little scope for judgment in their use. (International GAAP, 2010)

According to settlement rules, sometimes "the transaction is accounted for as a rule even if the accounting is misleading" ("What are the Better Principles or Rules?", 2011). The use of IFRS allows the company to provide the best performance in terms of financial performance and increase comparability between companies with similar industries. "Rule-based accounting did not work in practice, critics argue that the current US system does not produce a precise report, but focuses on" controlling boxes "as representing the underlying economic reality" (Thompson, 2009). IFRS attempts to reduce this problem through the interpretation of accounting principles.

Replacing GAAP Standards with IFRS Accounting Standards enables financial readers to make more informed decisions. At present, "more than 115 countries have adopted IFRS, and the European Union now requires that European listed companies (more than 7,000 companies) use it" (Kieso, 2012, EP-2). Most developed nations, in particular the EU's current international standards, have greater transparency and reliability in financial information. Facilitating convergence of accounting standards facilitates international investment and makes it easier for users to find financial information if they are located in foreign regions

Adoption of IFRS will contribute to reducing costs in the long run. Many companies such as Nike, Microsoft, IBM and Apple operate in different countries, so they have to produce different accounting books and records according to different standards. In addition, for financial statements users, both the GAAP and the IFRS, have to recognize the financial information provided by multinational corporations (MNCs).

Adoption of IFRS opens the doors for companies worldwide to recruit new talents. According to Matthew Birney, Head of Financial Reporting for United Technologies International Financial Reporting Standards, some of the positive aspects associated with IFRS are access to a broader talent management tool (Krell, 2009). Growing in a globalized economy and in the workforce hiring can no longer be limited to recruiting new cross-border applicants

As the world continues to shrink and business is increasingly globalized, global accounting practices. Increasing understanding and the benefits of creating an accounting standard will help drive assets and increase overseas investment. Accounting-based approach allows financial information creators to more accurately depict the financial performance of a company. As the global business environment improves, it is inevitable that an accounting standard set is required.


Bolt-Lee, C., & Smith, L. (November 1, 2009). The most important elements of IFRS research. Won on September 20, 2014.

Galuszka, P. (2008, August 28). Advantage and disadvantage of IFRS. It was won on September 18, 2014.

International GAAP. (January 1, 2010). It was uploaded on September 18, 2014

Kieso, D., Weygandt, J., & Warfield, T. (2012). Intermediate Accounting (14th Edition). Hoboken, NJ: Wiley.

Krell, E. (April 2, 2009). Largest IFRS costs? AZT. It was won on September 18, 2014.

Krell, E. (April 6, 2009). Advantages and disadvantages of IFRS. Downloaded: September 19, 2014

Thompson, R. (September 14, 2009). Principles / Regulatory Accounting. Opened on September 19, 2014.

What are better – principles or rules? (2011, April 5, 2011). Downloaded on September 18, 2014.

2012/2013 KROLL GLOBAL FRAUD REPORT SURVEY. (January 1, 2013). September 19, 2014.

Source by Andrew B Johnston

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