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International Community

Essay by   •  September 19, 2013  •  1,934 Words (8 Pages)  •  1,135 Views

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Abstract

The US GAAP and the IFRS used by the International community are two separate accounting standards and regulations set forth by the governing bodies of both entities to create an atmosphere that does not allow for advantages for one company or accounting entity over another. There are several problems that could come from this convergence and they must be studied and the best solution taken to make the transition as easy as possible as many countries could be at a complete loss if immediate transition were to take place. A look into the differences, the major problem of convergence and the general perspectives of each system are included to get a better understanding as to what is involved with the GAAP and IFRS.

GAAP and IFRS in Comparison

When looking at the United States and the International community, many times these two entities do not see eye to eye, it could be that the United States is looking through a different lens than the International counterparts, it could mean that the rest of the world refuses to looks through the same lens as the United States. Accounting is no different than all the other issues surrounding the United States and the International community. Anyone can work numbers , but how they work them is the key creating a consensus between all those that find numbers and formulas as a part of their daily lives, whether they live in Pennsylvania or they live in Paris.

This consensus is termed convergence, which is generally thought of as all entities coming together to accept one set of rules and or guidelines when operating in any sense of accounting. There are concept bodies that have been created to deal with accounting standards that are to help those such as investors, donors, lenders, etc. and to make sure that accounting does not work against them and is fair at every cost. The two concepts of accounting that are responsible for setting these standards are the GAAP (US Generally Accepted Accounting Procedures) and IFRS (International Financial Reporting Standards). Again, we back our steps up to the idea of United States versus the World, who will win or will they come to an agreement that all accountants will follow no matter where they live (IFRS, 2013).

Will They Come Together or Not?

Since 2002, these two ideas have been a hot topic they these two standards must put aside their differences and come together to be one joint standard that all accountants should follow and if not followed could carry penalties. The Memorandum of Understanding was a huge step in the governing bodies of both standards as they the United States and the International community relized a need to have one set of standards, years later both let specific milestones that were to be reached by 2008, as by 2008 both boards updated the MoU with progress made and what had been reached in agreement. The G20 members (referring to those that are in the G20 Summit) called for more progress creating an atmosphere of urgency for the entities responsible for the convergence. In 2012 the FASB and IASB (which are the two bodies) published a progress report and again in February 2013 another progress report (IFRS, 2013).

There have been many criticisms of the convergence efforts that involve the lack of pace that is going on between the two bodies regarding the convergence of both standards, also some have taken a stance that the convergence efforts and the comparibility efforts benefit one standard more than the other. For instance, globalization and the convergence is benefiting US accountants more because they can now create business outside the United States and be accepted , as some in the International community feel that they now have to do business with the market of the United States and live by the US rules of accounting (IFRS, 2013).

The likeliness of both ever creating a total convergence from all angles is highly unlikely, this is a work in progress as with different issues that surface in accounting are creating different topics that must be addressed. Much like a teenage driver on the road for the first time, as a different situation arises, the situation must be dealt with and learned from , which reverting back to accounting will create two different views and then a convergence of those views into one larger view that is accepted by all. There is always going to be those accountants that are out there that find some items unfair, but the consensus is what these two bodies are working towards creating a convergence.

GAAP and IFRS

The main key difference between the GAAP and the IFRS is what both principles of accounting are based on. The GAAP is more based on rules of accounting, as the IFRS is based on principles of accounting, with closely reflect the way both societies think, as the United States thinks more along the lines of rules of society and the societal norms by which these rules are made, while the International guidelines think along the lines of principles as with more than 110 countries following these guidelines, a different outlook must be followed to appease all the countries and the business between these countries. An example would intangible assets under both principles. GAAP recognizes intangible assets at "fair value" while under the IFRS, intangible assets would only be recognized if they have future benefit from an economic standpoint and has reliability that can be measured. Another area would be write downs that has glaring differences in both policies. Under GAAP once inventory is written down there is no reversing the write down. The IFRS states that if inventory is written down, it can be reversed in the future on after meeting criteria set forth. These two examples show the rules mode of thinking within the United States compared to the principles style of thinking the International community thinks by (Lundelius, 2011).

GAAP and IFRS Rules

There are some challenges to the rules set forth and what must be done to create a complete convergence of both sets of principles. The first and foremost is everyone must have a level head and look through the lens of accounting that their counterparts look through in order to understand the different ways of thinking. This could be a problem from the United States standpoint and could throw a wrench into the convergence efforts. Again, as stated above the United States is based on rules and regulations and the International community is not. Although the IFRS could benefit the United States more than is perceived. The major problem also involves the current standards of both the United States and the International community that are followed

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