The convergence project between the United States Generally Accepted Accounting Principles (U.S. GAAP) and International Financial Reporting Standards (IFRS)/International Accounting Standards (IAS) started in 2002. The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) met to discuss a joint commitment to develop a set of high quality standards that could be compatible internationally. The commitment was called the Norwalk agreement. The thinking behind the agreement is that it could improve international business relationships and allow financial statements to be compared across the world (IFRS, 2016). The convergence project started in out with six key initiatives in 2003 to incorporate identical style and wording in the standards issued by the FASB and he IASB: 1. Joint …show more content…
GAAP and IFRS/IAS applications. There remain many differences between U.S. GAAP and IFRS. The main difference is the conceptual framework. U.S. GAAP is a rule based accounting system while IFRS is a principle based accounting system. U.S. GAAP has over 25,000 pages of information while IFRS has 2,500 (Herrmann & Diamond, 2008). This difference leads to a different approach from those interpreting the standards, the principle based system of IFRS will require more judgement calls. Differences remain between U.S. GAAP and IFRS when it comes to revenue recognition. U.S. GAAP gives detailed rules covering 200 different pronouncements about how revenue should be recognized while IFRS offers two standards, IAS 18 and IAS 11; these deal with revenue and construction contracts. There is a current proposal for a new revenue recognition standard for both IFRS and U.S. GAAP (Doupnik & Perera, 2014). This standard seeks a main direction and corrects inconstancies between the two different views. This proposal would bring a unity to both entities and more progress toward
Switching to IFRS will help not just companies but also investors and public globally to compare financial statements. If every country has different financial standards, if would be problematic to compare how each company stands because they are not the same.
N.p., 7 Jan. 2005. Web. The Web. The Web. 16 Mar. 2014. The 'Standard' of the 'Standard'.
ASC 606 is a new revenue recognition principle that provide standards for recognizing revenue from contracts that provide goods and or services to a consumer. EY identifies the following five steps to apply the new principle: "Identify the contract(s) with a customer, identify the performance obligations in the contract, determine the transaction price, Allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the entity satisfies a performance obligation.("Technical")" Section 451 of the IRC generally requires taxable income to be reported by completing the all-events test and the amount is reasonably determinable ("26"). This can create a variation from the financial statements and the taxable income amount. To further study
Companies have to file tax returns that are in accordance with tax regulations and rules developed by the Internal Revenue Service (IRS). The amounts reported under taxable income and financial income differs. These amounts are different because financial income is based on Generally Accepted Accounting Principles (GAAP) which uses the accrual method to report revenues. Taxable income on the other hand, which is determined by rules and regulations of the IRS, follow a modified cash basis to determine revenue. Therefore, it can be seen that these amounts differ because of the differences between tax regulations and GAAP.
The Web. 22 Apr. 2009. The 'Standard' of the 'Standard'.
The goal of the Codification is to simplify the organization of thousands of authoritative U.S. accounting pronouncements issued by multiple standard-setters. To achieve this goal, the FASB initiated a project to integrate and topically organize all relevant accounting pronouncements issued by the U.S. standard-setters including those of the FASB, the American Institute of Certified Public Accountants (AICPA), and the Emerging Issues Task Force (EITF)
To help accounting professionals easily navigate through 50-plus years of unorganized US generally accepted accounting principles (GAAP) and standards the Trustees of the Financial Accounting Foundation approved the Financial Accounting Standards Board (FASB) Accounting Standards Codification (Codification.) By codifying authoritative US GAAP, FASB will provide users with real-time and accurate information in one location. Concurrently, FASB developed the FASB Codification Research System; a web-based system allowing registered users to electronically research accounting issues. Since 2009, the codification became the single source of nongovernmental authoritative GAAP.
In the world of international finance there are two major accounting systems; GAAP, which stands for Generally Accepted Accounting Principles, and IFRS, which stands for International Financial Reporting Standards. The United States prefers GAAP while the European market, as well as many other countries, prefers IFRS. By 2015 the Securities Exchange Commission is anticipating a total transfer to IFRS in the United States. Though the differences between GAAP and IFRS are few, they could affect accuracy of financial reporting throughout the world. It is important to understand the differences and similarities between both GAAP and IFRS if one is to globalize ones market (Logue).
Private and public accounting has long been discussed and disputed in regards to financial reporting. Since the Financial Accounting Standards Board (FASB) was created in 1973, accountants have called for different accounting regulations for private and public accounting sectors, as private companies do not have the resources to meet the complex requirements of public companies. Private companies currently are not required by law to issue annual or quarterly financial statements (James, 2012). Private companies do, however, have the option to apply the U.S. Generally Accepted Accounting Principles (GAAP), cash basis, or accrual accounting to their financial statements (James, 2012).
This new standard represents a signification milestone in the convergence process and how revenue is not recognized. Instead of trying to match costs and revenues or determine when revenue is “earned” the new standards focus on performance and control. (use PwC info)
The globalization of business has resulted in the need for compatible accounting standards that can be used internationally for financial reporting. As a result, the International Financial Reporting Standards (IFRS) were developed by the International Accounting Standards Board (IASB) to unify the various financial reporting methods and create a single accounting standard which can be applied to any financial statement worldwide (Byatt). The global standardization of financial reporting will increase the readability and enhance comparability of globally traded companies’ financial statements, without the need of conversion or translation. There are a few main differences between the International Financial Reporting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (U.S GAAP). The increasing recognition and acceptance of the International Financial Reporting Standards by accounting professionals in the United States, will affect the way in which the U.S will record financial statements in the future.
The main objective of the IASC was the development of International Accounting Standards, in an effort to reduce the differences in accounting practices across countries. Harmonization is the name given to the process of reducing differences in financial reporting practices and increasing comparability of financial statements in various countries. As such the intent of the IASC was to create a set of accounting rules that would be relevant and consistent to all countries ...
GAAP is exceptionally useful because it attempts to regulate and normalize accounting definitions, assumptions, and methods. Because of generally accepted accounting principles one is able to presuppose that there is uniformity from year to year in the methods that are used to prepare a company's financial statements. And even though variations might exist, one can make realistically confident conclusions when comparing one company to another, or when comparing one company's financial statistics to the statistics for the industry as a whole. Over the years the generally accepted accounting principles have become more multifaceted because financial transactions have become more intricate (Accounting Principles, 2011).
Small, medium enterprises (SMEs) are largest types business in the world, making up an estimated 99.7% of business. According to the Federation of Small Businesses (FSB) there are nearly five million existing businesses in the UK as of 2013. SMEs are a key contributor towards economic growth in terms of creating more employment, stimulating innovation and promoting social unity. SMEs are responsible for 47% of private sector employment, yet despite such global present there is still no agreed definition of a SME (Storey 1994). Bolton (1971) attempted to define them through a statistical and economic analysis. Classifications which are based on criteria, such as number of employees or annual turnover, however, do not remain consistent across borders. Given their size, smaller companies tend to be more intent on survival rather than expansion and profit maximisation. Smaller sized firms have always felt that the current reporting framework for IFRS is tailored more for the needs of larger companies and that the heavy cost burden it imposes upon them may not be entirely justified. In response to these concerns, the IASB subsequently issued the IFRS for Small and Medium-sized Entities (IFRS for SMEs) in July 2009. This standard offers an alternative framework which can be adopted by entities in place of the already extant full set of IFRSs or local national requirement standards.(Holt 2010) This essay will critically evaluate the impact of the IFRS for SME’s and whether or not it stands as the most suitable framework available for SMEs to use.
The third organization that helps to regulate the accounting standards is the IASB. “Our mission is to develop, in the public interest, a single set of high quality, understandable and international financial reporting standards (IFRSs) for general purpose financial statements”(IASB 2008,¶ 1). The IASB consists of a board that is made up from nine different countries with the sole purpose of expanding accounting standards. Their main hope and goal is to one day that there will be only one set of accounting standards that will be used throughout the world.