Question

Describe the progress (or lack thereof) that U.S. accounting standard setting bodies have made toward harmonization of U.S. GAAP with International Financial Reporting Standards. Elaborate on what you think the future holds in this regard.

Answer 1

In the United States the historical-cost method is used for assets under generally accepted accounting principles (GAAP). GAAP ignores other cost considerations such as replacement cost, fair value, or current market value. Only the original amount paid is considered. There is an increasing acceptance of IFRS, both in the United States and around the globe, due to the fact that it is better for the stakeholders of a company. One of the difficulties with the United States adopting IFRS is that LIFO is not allowed under IFRS. The primary reason the LIFO system is controversial is that the last items in inventory tend to age and thus could potentially become obsolete. Also it provides a "tax holiday" to business as they can report lower net income, and consequently pay lower taxes when inventory prices rise and inflation is on the increase.

United States may also resist IFRS as they may not have a market incentive to prepare IFRS financial statements. They may believe that the significant high costs associated with adopting IFRS outweigh the advantages. Furthermore IFRS is not globally accepted. Moreover is prone to manipulation because the businesses can only use the methods that they wish, consequently lead to financial statements show only desired results, which results to profit manipulation. Thus in my opinion, the full adoption of IFRS in the United States continues to face long odds; and the amount of time the nation takes for IFRS to be "admitted" into the United States as an internal reporting regime, and then mandated for the domestic issuers, may probably be measured in decades, not years.