Question

QUESTION:

Do you think the US should adopt IFRS. Why or why not? I really just want your opinion about changing from US GAAP to IFRS. What will be the pros and cons?

Answer 1

In my opinion US should not adopt IFRS. IFRS provides a more relevance and objective representation of the value of property, plant and equipment for the firm stakeholders. Thus is more relevant to denote the ability of the information presented in the financial statement for enabling the investors to make wise decisions. IFRS allows revaluation of assets after an initial impairment unlike the GAAP rules which requires reporting of asset at their historical value less the accumulate depreciation, and consequently enhances the relevance and faithful representation of the assets

But 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.