About IFRS. International Financial Reporting Standards are accounting standards developed by the International Accounting Standards Board that are becoming the global standard for the preparation of public company financial statements. Like the FASB, the IASB follows a rigorous, open due process to develop standards and cooperates with national accounting standard setters around the world.
It is funded by contributions from major accounting firms, private financial institutions and industrial companies, central and development banks, national funding regimes, and other international and professional organizations throughout the world. Finance professionals will have to be adequately trained and than the standards can be implemented consistently and uniformly in right spirit. Changes in Indian regulation — Current regulations governing the financial regulation would need a complete overhaul to implement the IFRS standards.
These legal hurdles is a major constraint in the path of IFRS convergence. This divergence of system would create volatility and subjectivity in financial statements. IT systems — Financial accounting software and tools used for reporting would have to be completely changed resulting in substantial investment in IT infrastructure for Indian Companies.
The cost of convergence far outweigh the advantages of convergence for these small businesses. It also established broad tactics to achieve their goal: develop standards jointly, eliminate narrow differences whenever possible, and, once converged, stay converged Norwalk Agreement.
That policy statement also said that the SEC expects the FASB to consider, in adopting accounting principles, the extent to which international convergence of high-quality standards is necessary or appropriate in the public interest and for the protection of investors Policy Statement. GAAP the F reconciliation.
The proposed Roadmap identified several milestones that, if achieved, would support eliminating the reconciliation. After considering the input received, the SEC issued a final rule eliminating that requirement in December Final Rule. The Concept Release sought public input on whether to give U.
Comment Letter. Under the proposed Roadmap, the Commission would decide by whether adoption of IFRS would be in the public interest and would benefit investors. The SEC also proposed that U. Most recently, in a joint meeting held in October , the FASB and IASB reaffirmed their commitment to convergence, agreed to intensify their efforts to complete the major joint projects described in the MoU, and committed to making quarterly progress reports on these major projects available on their websites.
As a further affirmation of that commitment, the Boards issued a joint statement describing their plans and milestone targets for achieving the goal of completing major MoU projects by mid We have updated our Privacy Policy.
By continuing to use this website, you are agreeing to the new Privacy Policy and any updated website Terms. International convergence of accounting standards is not a new idea. The concept of convergence first arose in the late s in response to post World War II economic integration and related increases in cross-border capital flows. Initial efforts focused on harmonization —reducing differences among the accounting principles used in major capital markets around the world.
By the s, the notion of harmonization was replaced by the concept of convergence —the development of a unified set of high-quality, international accounting standards that would be used in at least all major capital markets. The International Accounting Standards Committee, formed in , was the first international standards-setting body. Since then, the use of international standards has progressed.
As of , the European Union and more than other countries either require or permit the use of international financial reporting standards IFRSs issued by the IASB or a local variant of them. The Commission staff issued its final report on the issue in July without making a recommendation.
Research indicates that firms that apply the international standards show the following: a higher variance of net income changes, a higher change in cash flows, a significantly lower negative correlation between accruals and cash flows, a lower frequency of small positive income, a higher frequency of large negative income, and a higher value relevance in accounting amounts. Additionally, these firms have fewer earnings management , more timely loss recognition, and more value relevance in accounting amounts compared to domestic U.
There is some opposition to the convergence from all stakeholders involved, including accounting professionals CPAs, auditors, etc.
There are various reasons for such resistance to change, and some are pertinent to the accounting profession, some to corporate management and some are shared by both. The new set of standards that will be adapted will need to provide transparency and full disclosure similar to the U. Some reasons for the U. Culture in this context is defined as "the collective programming of the mind which distinguishes the members of one human group from another.
The accounting value dimensions used to define a country's accounting system, based on the country's culture, consist of the following:. The first two relate to authority and enforcement of accounting practice at a country level, while the last two relate to the measurement and disclosure of accounting information at a country level.
Examining those dimensions and factors that impact an accounting system, it becomes evident that cultural differences have a strong impact on the accounting standards of another nation, thus complicating the standards convergence. As a result, U. CFOs are not embracing this change because of the costs involved. There are specifically two areas that are directly impacted: a company's financial reporting and its internal control systems.
Another cost involved in the transition and change to the IFRS is the public's perception of the integrity of the new converged set of standards. The SEC reporting requirements will also have to be adjusted to reflect changes in the converged system. IFRS does not segregate extraordinary items in the income statement, but U. GAAP shows them as net income. GAAP does.
GAAP considers them expenses. It has been agreed to " a undertake a short-term project aimed at removing a variety of individual differences between U. Both FASB and IFRS have identified short- and long-term convergence projects, including 20 reporting areas where differences have been resolved and completed. The appeal of convergence is based is on the following beliefs: a the convergence of accounting standards can best be achieved over time through the development of high-quality, common standards and b eliminating standards on either side is counterproductive, and, instead, new common standards that improve the financial information reported to stakeholders should be developed.
Despite the research-indicated evidence of a higher accounting quality being experienced by firms that either apply the IFRS standards or have switched to them from the GAAP, the convergence process has not proven to be an easy task, mostly because of the differences in approach between the two accounting bodies.
The main issues with convergence lie with the difference in the approach of the U. The IFRS is more dynamic and is continuously being revised in response to an ever-changing financial environment.
It's anyone's guess how this convergence will evolve and impact the corporate financial accounting in the U. From a legal perspective, companies will be required to disclose qualitative and quantitative information about contracts with customers, including a maturity analysis for contracts extending beyond a year, as well as the inclusion of any significant judgments and changes in judgments made in applying the proposed standard to those contracts.
Maybe the answer lies in the need to consider a more in-depth study and an examination of the factors influencing the molding or development of a country's accounting system.
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