Question

Explain whether you think IFRS and GAAP will be fully converged. What is the current status of convergence projects?

Answer 1

There has been a concerted convergence effort between the Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS) in order to avoid conflict and confusion, promote simplicity, streamlining, consistency and transparency, and avoid any future financial crises or meltdowns.

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 GAAP is a rules-based methodology, while the IFRS takes a principle-based approach. The rules-based approach is comprised of a complex set of guidelines that establishes criteria for every possible contingency and provides the rules required for specified transactions, thus promoting uniformity. The principle-based methodology lays out the key objectives of good reporting in each subject area and then provides guidance, explaining the objective, and relates it to common examples, thus promoting transparency.

If these methodological differences between the two approaches cannot be resolved, they may prolong the process of compiling a true set of international accounting standards and increase the costs required to maintain two sets of books.

So from the above discussion it is clear that, IFRS and GAAP will be fully converged, but it will took a time.

current status of convergence projects

One of the main concerns in the United States business world is how the convergence process and its results will impact the future evolution of the accounting profession. This specific concern, simply stated, is about uniformity over transparency, and it has a serious impact on the standards development process. Could the goals of uniformity and transparency be achieved? Are they incompatible or mutually exclusive?

This incompatibility - real or perceived - is grounded in the conflicts existing among the constructs of rules-based and principle-based shareholder and stakeholder primacy theories, which are recognized by the Financial Accounting Standards Board (FASB), the International Accounting Standards Board (IASB) and the European and Asian Accounting Standards Boards, and which have an impact on the standards development methodology. Transparency has a direct impact on the areas of business combinations (Phase I and II), revenue recognition and financial performance of business enterprises reporting. hence they are still in process.