History and Current Status of IFRS Versus US GAAP
With the rapid implementation of the International Financial Reporting Standards (IFRS) by more than a hundred jurisdictions worldwide over the last decade, the US is one of the few countries that has not reached a consensus. The US seems to be slowing down on the IFRS implementation roadmap it presented almost ten years ago, despite endorsing a common set of international accounting principles and working very closely with the International Accounting Standards Board (IASB) to harmonize or refine the IFRS and US GAAP (Ortega, 2015). The two sets of accounting principles are now much more comparable than they were 20 years ago. While no one knows if the US can follow IFRS in the future, IFRS remains essential in the US, because many US businesses and investors are doing business worldwide. The International Accounting Standards Committee (IASC) was founded by the American Institute of Certified Public Accountants (AICPA) to create and publish accounting standards for audited accounts. It also encouraged the adoption of standards in the world.
The American Institute of Certified Public Accounting (AICPA) had been given the power to come up with a standard financial reporting that could be used to provide financial reports for securities and exchange companies (Latifah et al., 2015). This was after the 1934 Securities ACT was signed. Professionals from the AICPA committee later came up with standards that could be used to prepare financial statements (Jackling et al., 2016). Still, such measures failed to be useful as auditors could not establish financial information of business well.
Financial Accounting Standard Board (FASB) then took over to better financial reporting standards that could be used universally in 1973. Such a standard for reporting financial reports became US GAAP (Jackling et al., 2016). Such measures had all due procedures for financial reporting, and since it could be used effectively, this standard was also adopted by other countries. However, it was established in the United States. But as more countries continued to adopt the US GAAP financial reporting standard, it was noted that some counties continued to implement revised standards to ensure that US GAAP impacted all industries in the country (Latifah et al., 2015). Later it was noted that the financial measures provided by US AGAAP were not universally similar globally. The International Reporting Standards (IFRS) was preferred to replace US GAAP for global universality in the middle of financial reporting to global financial reporting standards. By the end of 2016, IFRS had been implemented almost worldwide by more than one hundred countries, and the IASB and FASB had achieved most, if not all, of their joint ventures (Ortega, 2015). Strangely, the US, the world’s biggest capital market, remains unclear if it will require its domestic companies to follow IFRS. While the SEC publicly notes in its strategic plan that it aims to endorse and encourage a single set of high-quality accounting principles to meet the needs of investors worldwide, there is no clear indication that IFRS will replace the US. Soon, GAAP. IFRS aims to create conceptually-based standards than can be widely used.
Currently, both US GAAP and IFRS are globally used for financial reporting. However, IFRS aims to replace US GAAP. The IFRS is comprised of a single set of high-quality accounting standards that enables users to make an economic decision and enforce them. Simultaneously, US GAAP gives out detailed rules that need to be followed without a room for users to make financial decisions (Jackling et al., 2016).
Future
It is expected that IFRS will be globally adopted as universal accounting and financial standards. Further, it is expected that the US GAAP will soon exist from the make after replacement by IFRS (Latifah et al., 2015). This means that the world will only use IFRS as the only universal standard for financial and accounting reporting. Although it is new to many countries globally, once it will be implemented as the world’s global economic and accounting standard for reporting, it will be taught and even used globally.
Conclusion
Standard financial and accounting reporting is an essential tool in any given country to ensure consistency in how the financial data from securities and exchange companies are reported. With the focus on how global economic activities are growing, having a universally global standard for accounting and financial reporting will enable a better understanding for different investors from different countries investing in the same international company (Latifah et al., 2015). The US GAAP remains to be one of the oldest international accounting and financial reporting standards. Although there is a possibility to replace US GAAP with IFRS, this may take and as most counties and business organizations are comfortably using and teaching the use of AU GAAP. Hence the global adaptation and use of IFRS may be uncertain since even the timeline for its implementation is also doubtful. Comparing the two standards of financial and accounting reporting, IFRS is thought to be better than US GAAP as it gives users a chance to make an economic decision and enforce them (Jackling et al., 2016). In contrast, US GAAP only gives out detailed rules that need to be followed without a room for users to make economic decisions.
References
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