International Financial Reporting Standards

1653 words - 7 pages

The globalization of the world’s capital markets has created an increasing need for comparable, detailed and transparent system of financial reporting making it imperative to establish one set of high quality global accounting standards (Gornick-Tomaszewski, S., & Showerman, S.2010). Currently, there are two sets of accounting standards that are generally accepted for international financial reporting- The U.S. GAAP ( Generally Accepted accounting Principles ) which have been developed by the Financial Accounting Standards Board (FASB) and the International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board(ISAB) (Kieso, D.E., Weygandt, J.J., Warfield, T, D, .2013. To bring about uniformity in financial reporting many countries around the world have agreed to accept IFRS as the global accounting standard to be used for preparing the financial statements of public traded companies (Gornick-Tomaszewski, S., & Showerman, S.2010). IFRS can be defined as a comprehensive, high quality set of accounting standards, rules and interpretations used in preparation of financial statements (Gornick-Tomaszewski, S., & Showerman, S.2010).Currently, over 115 countries in the world use IFRS for reporting financial statements of domestic companies. The European Union has mandated that all listed companies in Europe use IFRS to make their information more comparable and less complex to the users (Kieso, D.E., et al, 2013). However, in the U.S. there is complexity in reporting financial data. The reason for this complexity arises from the fact that U.S multinational companies with subsidiaries listed in foreign stock exchanges can prepare their financial statements using U.S. GAAP while foreign public corporations like Sony, Nestle, listed in the U.S. stock markets can prepare their statement using IFRS (Kieso, D.E., et al, 2013). This means that the companies have to prepare two sets of financial reports leading to additional costs for the company and providing the users of financial information of these companies with two sets of financial statements to comprehend (Kieso, D.E., et al, 2013).. A major difference between IFRS and U.S. GAAP is that IFRS provides less industry-specific guidelines and less over- all details as compared to U.S.GAAP (“IFRS FAQs”, 2014). In addition, IFRS are more principle-based accounting standards while GAAP is more rules based that requires companies to abide by very specific and rigid rules (Lin, J., & Fink, P., 2013).Although the regulatory authorities in the U.S. like the Securities Exchange Commission have been consistent in their support for a single set of globally accepted financial standards there are major differences between the two standards that need to be resolved (Gornick-Tomaszewski, S., & Showerman, S.2010). In the United States, the movement towards convergence between IFRS and GAAP gained momentum in 2002, when the Financial Accounting Standards Board (FASB) and the...

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