The International Accounting Standards Committee which was established in 1973 by the professional bodies of Australia ,Canada ,France ,Germany ,Japan ,Mexico, Netherlands, United Kingdom and Ireland and United States. The International Accounting Standards Committee rules were described as International Accounting Standards (IAS). However, in April 2001, International Accounting Standards Committee rule-making functions have been taken over by the newly constituted body, International Accounting Standards Board. The International Accounting Standards Board introduce new accounting standards under a new form which is call International Financial Reporting Standards and is recognise thru countries and is practice till this day. However, International Accounting Standard is still been issued by the old standard-setter International Accounting Standard Committee even thou International Accounting Standards Board is better funded, better staffed and more independent. " Ball,Ray. (2006). Accounting and Business Research, International Accounting Policy Forum. International Financial Reporting Standards (IFRS): Pros and Cons for Investors. 36 (Special), 5-27". The US General Accepted Accounting Principles was published by the American Institute of Accountants (AIA), this was published as Examinations of Financial Statements in 1939. Between the year of 1934 and 1935, the congress approved two major Securities Acts to restore public and investors' confidence after the 1929 stock market crash. The Securities Exchange Commission (SEC) has been given authority to prescribe "the methods to be followed in the preparation of the Financial Reports. The Committee of Accounting Procedure lead by members of American Institute of Accountants was pressured by the Securities Exchange Commission to provide Accounting Research Bulletins with substantial authoritative support for proper accounting practice. The Committee of Accounting Procedure was replaced by Accounting Principles Board to take charge in narrowing the differences in accounting practices to prevent optional treatments. The American Institute of Certified Public Accountants (AICPA) formerly known as American Institute of Accountants insisted that the Big Firms represented the Accounting Principles Board and the opinions formed by the Accounting Principles Board was overlook by the Accounting Research Division which was form by American Institute of Certified Public Accountants. The Financial Accounting Standard Board replaces the Accounting Principles Board on July 1, 1973 as the Financial Accounting Standard Board was more reliable and independent then the previous Board. " Stephen A.Zeff. (February 2005). The CPA Journal. The Evolution of U.S GAAP: The Political Forces Behind Professional Standards. 1 (1), 18-29".
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The collapse of Enron in 2002 has raised question on the capability of the accounting practice and accounting principles of US GAAP. The US GAAP and IFRS are based on principle form of reporting standards, where the absence of rules to guide has lead the manipulation of accounts in Enron a company in the United States as it heavy relayed on professional judgment and been audited in one of the Big firm Author & Anderson without identify the manipulation that has taken place over a number of years. However many still believe that principle based reporting standard has much more benefits than rule based reporting, as principle based reporting standard provides guidance limitless view on different types of circumstances that arise in practice. Besides that, principle based accounting relay on professional judgement by accountants, in which accountants are able to assess the substance of a transactions. The professional judgement instead of relying on detailed rules would enhance professionalism of financial statement. It would be simpler standard relying on principle standard accounting instead of relying on rules based accounting standard as principles based accounting would be easier to comprehend and apply to a broad range of transactions, This because rules based accounting standard aren't flexible enough to accommodate future development and has to updated it based of rules from time to time. Besides professional judgement, principal based accounting also minimise manipulations of rules as rules based creates a mind-set of box ticking and compliance cultures. This attitude would create 'anything goes' as long as it is not prohibited. Rules based accounting do not create a 100 per cent accurate financial report as it rules is limited to a certain degree where in can be bend not broken. The principal based approach on the other hand has many flaws as principal based accounting relies on the professional judgement of an accountant thus has a lack of guidelines that would create inconsistence in applying the standards across the organisations in the world. The principal based relies on individual professional judgement and different individual has a different approach and judgement, for an example the recognition of contingent liability based on professional judgement, how would the companies recognised contingent liability if liabilities are probable or only reasonably possible, would be recognised in foot notes or taken into accounts where if the amount is material it would effect the balance sheet and profit and loss if the contingent liability is not captured and only a foot note in the financial report due to not having a measurement guidance. The principal based accounting approach is not preferred by many practising accountants as it concerns the possible litigation over their exercise of professional judgement in the absence of rules." Rebecca Toppe Shortrdge, Mark Myring. (2004). The CPA Journal. Defining Principles-Based Accounting Standards. 74 (1), 34-37". There would be a change in as times goes by as accounting standards has to slowly move into principal based standard which is practice by the US GAAP, however it would be advisable to maintain the existing standards instead of starting all over a new standard. There may be problem faced while implementing this principle based standard, with the shift in attitude from all constituents of financial accounting information, including the standards setters, The Securities Commission, investors, auditors and public, transaction into principal based standard would be much smoother process.
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The US GAAP is a reputable standard used in the United States regardless the fraud problem face by the United States economic. The conversion to IFRS in U.S companies will affect many aspect of the business, however there are benefits to the companies in US by this conversion. Primary the US companies gain a greater market liquidity and lower cost of capital from this conversion, as this conversion is due to cross border investment where it has been eliminated when the accounting standards are a single set of financial of reporting standard thru out the world. Hence forth the IFRS is a principle based accounting that has a wider rules and less specific application guidance, this will allow accountant the room to interpret and emphasis on reliance on professional judgement. Adoption of IFRS worldwide would encourage the reliance professional judgement as professional judgement are made by human and will be able to produce answer in different scenario or cases and adopt to the changes in environment which computer and software are unable to adopt.