Question

In addition to preparing financial statements in accordance with GAAP, U.S. companies may be required, in the near future, to prepare financial statements according to International Financial Reporting Standards (IFRS). If the United States adopted IFRS standards, what would be the advantages and disadvantages? Does it make sense for U.S. companies to change to IFRS? How would IFRS impact a comparative analysis of an organization's financial statements?

Answer 1

Followings are the main advantages of adopting IFRS;

1. Adoption of IFRS will lead to greater comparability because when financial statements are prepared as per IFRS then we can easily compare financial statements amoungst various countries easily.

2. Investors can easily understand financial statements of companies if financial statements are prepared with the help of IFRS. In other words we can say that IFRS will help in easy reporting of financial information to the various investors.

3. Use of IFRS will lead to more flexible financial statement reporting. In other words we can say that when financial statements are prepared as per IFRS then it will provides more flexibility.

Followings are the main disadvantages of adopting IFRS;

1. Preparation of financial statements as per IFRS requires higher costs and higher trained human resources hence these factors lead to higher financial burden on the companies adopting IFRS.

2. There are higher chances of manupulation in the preparation of financial statements. Thus adoption of IFRS may lead to various types of manupulations in the financial statements.

3. As we know that IFRS are not globally accepted that is why financial statements prepared as per IFRS will not provide base for the comparability of the financial statements. Hence IFRS does not gurantee about the fair comparability.

Does it make sense for U.S. companies to change to IFRS?

Yes, U.S. companies should shift toward IFRS because in present time most of the companies are operating in various countries that is why it is required that U.S. companies should adopt IFRS in prepartion of financial statements so that there should be proper comparabiity amongst financial statements of subsidiary units.

It is also clear that every company have investors spread in various countries and these all investors requires uniform financial statements that is why it is required that U.S. companies should adopt IFRS.

Hence it is true that U.S. companies to change to IFRS.

How would IFRS impact a comparative analysis of an organization's financial statements?

We know that financial statements prepared as per IFRS will be uniform and investors can easily compare financial statements of various companies or subsidiaries easily due to uniform financial statements. In other words we can say when all the companies (World wide) are preparing financial statements as per IFRS then stakeholders will get unform financial information and on the basis of uniform financial information (financial statements) stakeholders can do easily comparative analysis of an organization.

Hence it is true that IFRS definitely affect a comparative analysis of an organization’s financial statements.