The documented benefits include a lower cost of capital for some companies and increased investment in jurisdictions adopting IFRS Standards. Convergence with IFRS will result in high quality, transparent and comparable financial statements that are based on modern accounting principles and concepts that are being applied in global markets. 3 0 obj Retrieved September 18, 2014. International GAAP. There may appear to be some obvious reasons why convergence between IFRS and GAAP has been brought up as a possibility. Retrieved September 18, 2014, from http://www.wiley.com/WileyCDA/Section/id-403632.html. 2012 / 2013 KROLL GLOBAL FRAUD REPORT SURVEY. (2013, January 1). IFRS, being principle based standards, are expected to provide many benefits in different ways to economy, companies/industries and investors. Some countries are working with the International Accounting Standards Board (IASB) to converge their own standards with IFRS. Retrieved September 19, 2014. Benefits of the Convergence to MFRS - Free download as Word Doc (.doc / .docx), PDF File (.pdf), Text File (.txt) or read online for free. And, according to KMPG, the largest component of IFRS conversion costs are IT costs, estimating that 50 percent to 70 percent of a typical conversion effort’s costs relates to IT (Krell, 2009). The objective of this project is to eliminate a variety of dif­fer­ences between International Financial Reporting Standards and US GAAP. The SEC met on February 24, 2010, voting to issue a statement of its position supporting IFRS and convergence of U.S. and international accounting standards, and directing the staff to execute a Work Plan to assist the Commission in evaluating implementation of IFRS by U.S. companies. “Studies suggest that a major impact will be the cost of transition to IFRS. Retrieved September 20, 2014. While Japan has committed to the convergence of Japanese generally accepted accounting principles (J‐GAAP) with IFRS it has not as yet formally adopted IFRS. Source by Andrew B Johnston. In addition, users of financial statements must be knowledgeable in both GAAP and IFRS to completely dissect the financial information reported by multi-national corporations (MNCs). Convergence Indian GAAP to IFRS is expected to result in several benefits to Indian entities. IFRS tries to curb this problem through greater interpretation of the accounting principles. These costs will burden small to medium sized companies that lack the capital and resources that large MNCs possess. It improves the ability of investors to compare investments on a global basis and thus lowers their risk of errors of judgment. As such, problems in the post application periods cannot be denied and moreover, the types of such problems cannot be forecasted for certain, at this point of time. It is beneficial to new and small investors. Replacing GAAP standards with IFRS accounting standards will enable interested users of financial statements to make more informed decisions. Under rules based accounting, it is sometimes the case that a “transaction must be accounted for in accordance with the rule even if the applied accounting is misleading” (“Which is Better — Principles or Rules?”, 2011). In an increasing globalized economy and workforce, hiring may no longer be restricted to hiring new applicants within the country’s borders. 1 0 obj According to research, the benefits to U.S. investors may not exceed costs. Convergence vs. comparability. (International GAAP, 2010). endobj Krell, E. (2009, April 2). IT. Known as the Norwalk Agreement, the two boards agreed to make “existing financial reporting standards fully compatible as soon as practicable”, and to “coordinate future work programs to ensure compatibility is maintained” (Kieso, 2012, p. EP-2). International Financial reporting standards (IFRS) and General accepting accounting principles (GAAP) convergence issue began in the late 2000’s. No major global convergence projects are currently on the FASB’s agenda. According to Matthew Birney, a manager in the financial reporting department responsible for International Financial Reporting Standards at United Technologies says some of the positives to IFRS is access to a wider talent pool (Krell, 2009). Although the FASB sets the standards, the SEC oversees and ensures public companies are complying with laws, practices and acting in a manner that facilitates ethical behavior and decision making. yoyo Perhaps the most notable advantage relating to convergence lies in the unifying effect of allowing U.S. companies to use international principles. Intermediate accounting (14th ed.). Another benefit is that it will help incorporate better practices within corporate Malaysia by adopting international standards. We study the ex ante stock market reactions to events leading up to China’s convergence to International Financial Reporting Standards (IFRS). Hoboken, NJ: Wiley. Which is Better — Principles or Rules? Another disadvantage to IFRS is the cost expected to be associated with transitioning from GAAP based standards and accounting information systems to IFRS based accounting information systems. “Under the present system, the SEC attempts to ensure uniformity and consistency in financial reporting. Indian Accounting Standards are formulated by the Accounting Standard Board (ASB) of the ICAI as notified by the Ministry of Corporate Affair. Unlike those studies, we examine the ex ante implications of IFRS convergence in China. Research also suggests that these costs and benefits will vary across firms and will be difficult to trace upon adoption” (Bolt-Lee, 2009). Krell, E. (2009, April 6). Principles-based standards allow more leeway as to how corporations can portray their financial performance (Galuszka, 2008). 2. . IFRS is used in over 100 states as the major accounting criterions in the readying of external fiscal coverage. (adsbygoogle = window.adsbygoogle || []).push(); http://www.wiley.com/WileyCDA/Section/id-403632.html, What’s in a Name – WTC and the Ironman Brand, Important Considerations When Driving International Business Growth And Expansion, Auto Lease Termination – 4 Ways to Get Out of Your Auto Lease, Strategic Square – Whether or Not Marketing is a War, 3 Things to Consider Before Sharing Condo Ownership With Friends and Family, Business Coaching Internship – Interning As a Business Coach, How to Generate Money Via the Path of Least Resistance. However, while these costs may be high, they are short-term in nature and it is estimated companies will save money in the long term. Is Ron Mead's Probate Investing Course Any Good? convergence with IFRS will provide greater credibility and transparency to financial reporting in Malaysia making it easier for global investors to understand and rely on the financial report of Malaysian companies. Using IFRS allows a company to use judgment to best represent financial performance, and increase comparability among companies with similar transactions over different industries. Such initiatives have consequences on the world of accounting diversity, and the standards convergence of GAAP along with the IFRS largely … <>>> The IFRS, on the other hand, are made keeping global standards and environment in mind. with IFRS (hereafter, “convergence”).1Prior research comparing the benefits of adoption versus convergence is limited. The question should be asked about why to push for convergence in the first place. There may not be a one-size-fits-all global accounting rulebook coming anytime soon. 3. . It benefits the economy by increasing the growth of its international business. In other words, IFRS is open to more interpretation than rules based GAAP, and can lead companies to release fraudulent representations. As global business environments improve, it is inevitable that one set of accounting standards is needed. %PDF-1.5 The project, which is being done jointly by FASB and IASB, grew out of an agreement reached by the two boards in October 2002 (the 'Norwalk Agreement').The IASB-FASB con­ver­gence project was of par­tic­u­lar im­por­tance as: 1. Principles-based standards allow more leeway as to how corporations can portray their financial performance (Galuszka, 2008). While the benefits of convergence with IFRS were widely acknowledged among However, regulators cannot enforce uniformity in a principles-based system” (Thompson, 2009). (adsbygoogle = window.adsbygoogle || []).push(); Status of Global Convergence of Accounting Standards. Critics argue that the present U.S. system does not produce accurate reporting. x��=is7��]�����-�� }dR���8�L�x-eR[��@��ČD*e����8�D�n̈́b7�w��]8�����˪�HQ In the U.S. the Security and Exchange Commission (SEC) has the power when it comes to accounting standards. They are made to suit the Indian companies and the disclosure requirements of the Indian government. By encouraging the international investors to invest, it leads to more foreign capital flows to the country. 2 0 obj Using a setting unique to the German market, we find that comparability between matched German firms previously reporting under U.S. GAAP and IFRS increases after all firms report under IFRS. 1. I believe that this is a small price compared to the resultant benefits. IFRS Pros and Cons. International Financial Reporting Standards(IFRS) have already been adopted in many countries, and are in the process of being adopted in many other countries. (2010, January 1). Abstract. Adopting IFRS will, in the long-term, help to reduce cost. After convergence, these companies can use IFRS company-wide, reducing or eliminating the amount of duplicated accounting efforts required. The report finds that IFRS convergence in China has been beneficial where companies have had appropriate legal, governance and commercial incentives to provide high-quality … Although the two boards have made significant progress, efforts to converge critical accounting standards — such as those dealing with revenue recognition, financial instruments and leases — have been challenging and time consuming. Most of the developed nations, especially those members of the EU currently practicing international standards, have a higher degree of transparency and reliability amongst financial information. Galuszka, P. 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