The institutional and the cultural problems are the main issues for the adoption of IFRS into the US. Firstly, the US has the worlds largest capital market. The way of setting standards has a long history (Roberts et al, 2008). The different of national institutions arouse the problems of the IFRS implementation in different jurisdictions, there are no sufficient enforcement mechanisms in the US, professional judgment is considered as the mainly cultural different between the two. And the different political, legal educational corporate governance systems would lead to the giant change even the infrastructural system in the US. Also, the International Accounting Standards Board does not have authority to enforce its standards (Gibson, 2012). One of the most striking different of these two accounting structures is the setting approach; U.S GAAP is using the rule-based approach while IFRS use principle-based measurement. Under these differences, the US GAAP takes more concern about the literature rather than IFRS, which is considering the facts pattern (Forgeas, 2008). Moreover, according to the different setting approaches, there are various arguments resulted by these two accounting system. For those supporting the rules-based standards could benefit from a clear statement for regulators and for those subject to regulation. With the detail regulations, rules-based standards would be able to deal with the complex business problems especially under the emerging circumstances. And, although the principles-based standards would allow the 'bigger picture' of representation, the evidences have shown the ruled-based standards could be able to present a faithful representation of economic reality in a consistent manner (Kivi et al, 2004). For the other aspect, since the rules-based standards are better in solving the problems in a particular situation, sometimes, it is difficult to get understanding from it. That could result a series inconveniences. The principles-based standards are more responsive to changes in business practices and will improve transparency of reporting as it gives the flexibility for the users. Meanwhile, the US GAAP also has its own advantages, such like the transparency with clear-cut rules and application guidance. The US believes the unparalleled public enforcement of the high quality standards result in the detail rules and the institutional infrastructure (Yoon, 2009). Therefore, the differences are not only affect the financial reporting but also the companies' activities. In this case, the processes of transition the IFRS to the US would take a long time and it would be complicated.
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In fact, there are many evidences show that US is moving toward the adoption of IFRS slowly especially after the Enron. The US is acting to prevent the same problems by adjusting the accounting system, such as all the financial reports of cross-listed companies on the stock market in the US have been allowed to use IFRS since 2007 (Zeff, 2008). In this case, the arguments contain both positive and negative views of the adoption of IFRS in the US. No doubts, the adoption of IFRS would increase the comparability and transparency of financial information between the multinational companies in the US and the investors can access the foreign capital markets easier and help the growth of economy. The IFRS can also help enhancing the efficiency of the use of resource. The judgments of IFRS can efficiently prevent the abuses that occurred under the US GAAP. Also, it can improve the liquidity of capital markets and reduce companies' costs of capital by providing better information for the investors on the corporate performance.
Nevertheless, the SEC staff wrote that IFRS were a set of high-quality standards, but the gap between the IFRS and US GAAP should be concerned as it has a lot of decisive influences. Such as, the improvement of the comparability benefits of the accounting reports is based on the similar accounting conditions, in other words, accounting standards are one of the factors have the impacts on the companies' financial reporting incentives, if other different factors across countries and industries are staying still, the financial reporting and the practices will not get much benefits as the prospects. For example, According to the Hail et al (2010), the substantial impact on the reporting quality of the U.S firms that makes the conversion to IFRS more impossible. Since, there are no consolidated evidences to prove which set of the accounting standards is better for the US. While, the companies are able to report their accounting information in a way that is formed not only in accordance with the US' accounting principles but also the strength of the country's legal institution and enforcement efforts. The companies are liable to meet the demand of the investors with a high quality report so that it can enhance the ability of accessing the outside funds in the capital markets, product competition and governance practices. These elements of the accounting report have been well considered under the current accounting system in the US. Unless the elements mentioned above are changing, the current accounting standards in the U.S would not have a significant improvement by using the IFRS. Conversely, the changes would probably lead the country into an uncertainty situation and make it even worse.
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Furthermore, since the IFRS adopting countries are various in the applications of IRRS and managers would naturally refer to the local GAAP while making business decisions. Besides, U.S and international standards regulators are making the efforts to converge the IFRS and the U.S GAAP. These two accounting standards tend to be harmonized and more modest. Therefore, the conversion seems undesirable and it would bring a lot of uncertainty to industries and companies in the U.S.
Obviously, the conversion from the origin accounting standards to the IFRS will cost a lot from the companies, investors, auditors and other relevant from re-training the employees, reposition the whole accounting systems and during the transition, auditors and accountants need to make the standards amendment in order to compare the differences between the financial reports under the U.S GAAP and the IFRS application. There is survey evidence from the 2005 mandatory transition to IFRS in the EU and the transition costs for estimation would at least be 8 billion dollars for the entire U.S economy (De George et al, 2013). Although the switch could bring a long term benefit to the U.S, inevitably many of the U.S GAAP auditors and accountants will lose jobs, while, to those companies could not afford the highly cost, it may bankrupt the companies and this issue could be substantial.
In contrast, the multinational companies and the financial markets increase the possibility to unify the accounting standards, in the U.S, especially for those large and cross-listed companies on the US stock market which have the capital advantage will be able to obtain the long term benefits from the transition to IFRS. It is predictable that the conversion to IFRS will decrease the cost of capital by achieving comparability through the principles-based standards (Selling, 2008). Using the IFRS can save a lot from translating the accounting information to the local one. Because of the global influencing power of IFRS is increasing, these companies in the U.S will get more and more benefits rather than using the single set of U.S GAAP. Hence, the adoption of IFRS in the US could benefit the multinational companies and the large companies with a long term cost saving and help keeping up with the globalization in the accounting area.
As Niskanen (2010) stated, the current financial accounting standard in the U.S is not considered as a perfect guide for the auditors and investors. He recommended the accounting standards setting should not be set by the FASB and approved by the S.E.C as he believes that various firms and industries do not get the most advantages from one set of accounting standards. Significantly, the accounting standards board, Congress and the S.E.C do not have better information than other institutions about setting accounting standards. Meanwhile, the S.E.C has the specific superiority in presenting the current political demands balance but it does not have the advantages to approve the amendments from the FASB. At present, the U.S is studying the comparative value of rules-based and principle-based accounting. Therefore, it would cause an effect on the S.E.C on the standards setting approach in some ways. Alternatively, S.E.C allowed the objectives-based approach that creates standards in the basis of the setting goals in order to create more sensible and informative financial statements. However, they are not able to clarify what exactly the related concepts (Niskanen, 2010). Apart from that, the current U.S accounting standards are becoming more and more unusual complex and vulnerable to subjective interpretation due to the slowly updates of the new type financial transactions and conditions of FASB. It is too weak to serve those controversial accounting doctrines. In this case, US investors expect that the country will eventually adopt the IFRS after the analysis of the report from the ACCA (the Association of Chartered Certified Accountants). According to this report (ACCA, 2012), there are 57 percent of investors believe the SEC will require the adoption of IFRS because they believe it would eventually bring a lot of benefits to the US economy. As the regulation and the harmonization is really important to the accounting standards. The better understanding of the global standards can increase the assurance to both companies and investors (Cohn, 2012). Although the conversion of two accounting standards has been making effort for a long time, the details differences lead the processes more complex. The US GAAP has proved them with a good quality. Thus, whether the advantages of the US GAAP could be maintained during the switching processes would be the biggest challenges overall.
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