Convergence between IFRS and the US GAAP began from September 2002 in which the International Accounting Standards Board ( IASB ) and Financial Accounting Standards Board ( FASB ) signed a common understanding “ Norwalk Agreement ” which shows the committedness by both parties to a set of high quality planetary accounting criterions. The convergence is still in procedure, although it has taken more or less 10 old ages. There are several grounds which will be explained below in inside informations.
First, there are many differences in footings of accounting criterions between the IFRS and US GAAP. For case, the accounting interventions for fiscal instruments, gross acknowledgment and so on in both criterions are non compatible. There are 14 joint undertakings in entire for the convergence [ 1 ] . Therefore, it is difficult for both boards to do a consensus on all these undertakings within a decennary. Besides, at the beginning of the procedure, there is no an obvious and right way for both parties about the convergence procedure and therefore the procedure is non finished yet and has been undertaken about a decennary.
Second, the difference in methodological analysis and nomenclature is besides one of the grounds why the convergence has taken a long period. It is good known that U.S. GAAP is rule-based and IFRS is principle-based. U.S. comptrollers are used to the regulations provided by the GAAP when fixing their fiscal statements, but IFRS focuses on the rules provided by IASB and professional judgements, which is difficult for U.S. comptrollers to acquire used to it. It is difficult for two boards to do consensus on something which have different methodological analysis and even reading in lone several old ages.
Third, in order to accomplish the end “ to travel to a individual set of high quality planetary accounting criterions ” , there are different positions which are adoption protagonists and convergence protagonists [ 2 ] . They have disagreement on how to accomplish the end and hence there is no a consensus between them about which route FASB should be toward. Sing the acceptance protagonists, they believe that if there is merely convergence between these two criterions, there will be a batch of jobs like race to the underside job. Besides, they believe that IFRS is a set of high quality accounting criterions since there are more than 100 states which adopt the IFRS for their domestic companies and hence they claim that the acceptance will increase the comparison of the fiscal statements of companies in same industry but in different states more than what convergence does. However, convergence protagonists claim that US is the greatest capital market globally, so it should non lose its important control of the standard scene procedure, and the costs related to alterations in accounting criterions are excessively high. These different positions make the procedure of convergence unfinished since they will set force per unit area on FASB and SEC based on their ain position.
Finally, the ground why the convergence has taken a long clip is related to political affairs. Although FASB is a private compositor for accounting criterions in U.S. , to a big extent, it has to follow the determinations made by Securities and Exchange Commission ( SEC ) . Therefore, if a portion of convergence does non fit the willingness of SEC or the demands of U.S. , there may be a call from SEC for the halt of such undertakings in the convergence procedure.
Although the procedure is still traveling on and remains unfinished, there are many discoveries between two boards such as the cancellation of the rapprochement of fiscal statement and release of roadmap by SEC.
Whether the U.S. GAAP should meet with IFRS depends on the analysis on both benefits and costs.
Sing the benefits, it is obvious that investors will be more able to do comparings between companies in US and in other states following IFRS since all companies ‘ accounting interventions will be more or less the same after the convergence except any exclusion instance. This benefit matches the aim of both fiscal coverage of US GAAP and IFRS.
Besides, one of the aims of convergence is to better both criterions, which can heighten some of the cardinal feature of both criterions. For illustration, the convergence can allow investor non necessitate to hold understanding on both two different accounting criterions when doing their investing determination. This can heighten investors ‘ ability to do an accurate analysis on companies and can cut down much confusion.
In add-on, cross-listing is one of the common tools for big companies to obtain their equity funding presents and more non-American companies try to acquire entree to the great capital market in U.S. If there is no such convergence between U.S. GAAP and IFRS, the costs created by fixing rapprochement by non-American companies, which adopt IFRS, will be important and hence may impact public presentation of the companies. Therefore, the convergence can cut down such unneeded transmutation costs.
Furthermore, globalisation boosts the international trading among states including capital market. If there is such convergence, it can do foreign companies more possible to acquire entree to the capital market of U.S. It can allow the capital market of U.S. expand and besides can supply foreign companies with more chances of raising capital for their enlargement.
Refering the costs, as mentioned above, US GAAP is rule-based but IFRS is principle-based, so if there is such convergence, it will coerce American companies to follow a new set of accounting criterions and patterns and hence it will may the operation of the companies and will increase the costs of the companies significantly. For case, the preparation costs for comptrollers and the costs for re-scheduling concern schemes will be important.
In add-on, different states have their ain demands on fiscal coverage due to the cultural differences and hence they have different accounting patterns. If the convergence takes topographic point, the new criterion may non wholly fit the local demands of U.S. In U.S. , its original accounting criterions are partially for the revenue enhancement intent, but, in UK, IFRS is for the accounting intent.
Besides, many critics in U.S. claim that the convergence may do FASB lose the control over the accounting puting since it has no longer power to put accounting criterions for U.S. ain demands and has to cover with IASB.
After refering all the benefits and costs, the benefits overweigh the costs, although the costs involve some political issues, and therefore the U.S. GAAP should meet with IFRS.
From my point of position, IFRS and the U.S. GAAP will finally meet due to globalisation and force per unit area from other states.
Sing the globalisation, a rapid development of engineering makes people and states closer, which means, from investors ‘ position, there are more investing chances and, from companies view, there are more ways for raising capital. In order to keep its position of the capital market in Earth, U.S. will be more willing to supply investors with a more comparable accounting criterions for their comparing on different companies and willing to supply foreign companies with a more cost-efficient method to raising capital in U.S. As we know, there are more states holding strong economic system such as China and India. Most of these states ‘ companies have to raise capital overseas, so U.S. has to alter its ain accounting system in order to increase its attraction as a suited capital market for these companies.
Sing the force per unit area from other states, in the G20 Summit in Pittsburgh in 2009, there was a “ call on our international accounting organic structures to redouble their attempts to accomplish a individual set of high quality, planetary accounting criterions within the context of their independent criterion puting procedure, and finish their convergence undertaking by June 2011. ” Although it seems to be impossible for FASB and IASB to finalise the work on convergence, the work will finally complete since the force per unit area from other states is greater increasingly. After the fiscal tsunami in 2008, the economic system of U.S. is still non to the full recovered and more underdeveloped states like China and India got voice in international affairs. It is expected that these developing states will set more force per unit area on U.S. in order to do their domestic companies easy acquire entree to the capital market of U.S.
Although it is believed that the procedure will complete finally, it is expected that the procedure will stay unfinished for more several old ages, even a decennary. The ground is that there are still different positions on the manner to convergence, as mentioned above. Extinguishing the different positions is a must in order to accomplish the convergence. In add-on, it is believed that SEC will non be willing to lose the control over the accounting criterion scene and hence there are still many obstructions in the route to the convergence between IFRS and U.S. GAAP. As a consequence, the convergence will non complete in a short tally but in a long tally.