International Financial Reporting Standards - Advantages and disadvantages

Globalization is a trend of companies can not ignore. The conversion to International Financial Reporting Standards (IFRS) from U.S. GAAP began in early 2005, many EU states adopting techniques to prepare their financial information in accordance with the new rules. Since 2005, many states that were planning on converting to the U.S. based on generally accepted accounting principles (GAAP) have changed their focus to the adoption of IFRS. Countries like New Zealand, Canada and Australia have already implemented IFRS, while Japan is planning to do so by 2011 and the United States by 2014, a huge change that will affect everyone.

Now that a little 'history has been brought to the table on the history of International Financial Reporting Standards, it is important to know the main differences in comparison with U.S. based GAAP IFRS. To begin, IFRS does not permit Last In First Out (LIFO) as a method of inventory costs. However, as I am aware that only a small number of companies, about ten percent still use LIFO. Ideas IFRS on revenue recognition are more widespread than GAAP statements containing very little specific to each industry. IFRS uses a single step method for impairment write-downs than the two-step method supports U.S. GAAP. Under the single-step method impairments are far more likely to take place. Overall, the main difference and most important is the fact that IFRS provides much less detail and less specific requirements for joining the non-GAAP reporting.

The main differences with international standards and the United States to create advantages and disadvantages. Particular has been the key factor that has made GAAP success for many years. Eliminate the required specifications can cause uncertainty and mistrust in auditing and fraud scandals in accounting. Shareholders and investors may lose faith because of this with all the details, not shown. Scare enough, this could affect many other sectors of our economy. I've never heard of anyone who wants to invest in something you know almost every piece of information, investments were made of rock. To put it in perspective, the 'book' on Generally Accepted Accounting Principles is nearly ten inches thick, and International Reporting Standards measure only between two and three.

No matter how you look, the main objective and reason for conversion to IFRS is to make everyone globally on the same plane to the preparation of the budget. That said and done will allow domestic firms to submit their financial data on the same level of foreign competitors. In addition, companies with subsidiaries in other continents, will be able to prepare their budgets in one, worldwide, universal accounting language, understood by all. While everything seems easier and less confusing, the only way it works is if IFRS companies to meet one hundred percent. Not completely eliminate the conversion main objective-global comparability.

The main objective overall conversion may be difficult to achieve. Many believe that the U.S. Generally Accepted Accounting Principles is a tried and true standards, the foundation of the success of the U.S. accounting. We need to question if something is lost by the acceptance of international standards or if it could also operate without a full convergence. Two problems exist that may present a problem some companies to address the issue whether to convert or not. Some companies may have to stick with GAAP required of certain authorities or regulators. You might think that the regulations and authorities have changed their attitude as well, but for now is uncertain. In addition, there will hardly be an incentive for companies to turn if they have no market incentive to prepare their budgets this new way. For example, perhaps the company deals exclusively in a small domestic industry. An incentive should be created. Hopefully, once a handful of companies to convert all others to follow for one reason or another.

Overall, the idea of ​​establishing a set of global standards is a bold and well thought out idea. If properly applied, the global accounting language could attract foreign investors and create more interest in our economy for the granting of a stimulus. The advantages and disadvantages are quite clear, the only thing left to do is complete a global transformation. If you can not GAAP and IFRS have been readopted, can cause economic instability. Certainly nobody wants to invest in a volatile market .......