Question

Please explain and provide examples

• Discuss the advantages and disadvantages of U.S. GAAP and IFRS convergence.
• What role has the codification played?
• In your opinion, should the United States adopt IFRS standards? Why? How might this impact international companies?

Answer 1

1. Advantages of USGAAP and IFRS convergence:

a. Comparability between different countries on accounting and financial reporting

b. Transperancy, simplification and renewed clarity

c. Timeliness and the availability of uniform information to all concerned stakeholders

d. Convergence would result in an increase of international investments, reduction of interest rates and lead to economic growth

Disadvantages of USGAAP and IFRS convergence:

a. Time taken to implement a new system of accounting rules and standards

b. Lack of good understanding of the international principles

c. Cost involved in the transition and change to the IFRS

d. IFRS is more dynamic and is continuously being revised in response to an ever-changing financial environment

2. Role of codification in the convergence: An important element of the convergence move is the development of the Codification. The codification simplifies the classification of accounting standards by restructuring all authoritative U.S. GAAP for nongovernmental entities into one online database under a common referencing system. The codification is a first step in organizing U.S. accounting standards for convergence with IFRS. At the topic and section levels, the codification material correlates to IFRS. The codification topical organization is expected to ease the convergence of U.S. GAAP and IFRS standards.

3. In my opinion, the United States should adopt IFRS standards due to the following reasons:

1. IFRS has strong capital market orientation

2. Cost savings for US MNCs which have overseas subsidiaries

3. Comparability and network benefits

4. IFRS is a worldwide standard/ benchmark

5. IFRS is easy to comprehend and apply

International companies will only stand to gain from this adoption due to easier consolidation, comparability with peers, inflow of capital and dynamics accounting with changes in IFRS standards.