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GAAP to IFRS
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Rules-based versus Principle –based accounting
Principle-based accounting
Accounting standards may take the form of general principles, relying on interpretation and judgment by the financial statement preparers before they can be implemented.
Rule-based accounting
Accounting standards may take the form of a series of rules, limiting the flexibility and use of judgment allowed in their implementation.
Rules-based versus Principle –based accounting
Principle-based
Potentially very flexible with regard to new and changing products and environments. As such, they should also require less maintenance.
More difficult to audit relative to compliance, and concern over consistent and reliable interpretations across entities.
To the extent that they rely on individual judgment to interpret and implement the standards, there is a danger that they can be used to manipulate financial results.
Rule based
Rule-based standards are generally considered easier to audit for compliance purposes, and may produce more consistent and comparable financial reports across entities.
May include a lack of flexibility with regard to changing conditions and new products, hence requiring almost continual maintenance at times.
Frequently easier to manage as entities may search for loopholes that meet the literal wording of the standard but violate the intent of the standard.
Challenges inherent with global corporate governance
The growing complexity of the companies that require governance. These are the number of factors that management and boards must understand, and the rate at which these are changing.
The already present trend for so many companies to become global. Operating in many countries around the world with different economic conditions, laws, and cultures, creates a great deal of added complexity for any board.
Challenges inherent with global corporate governance
The rapid flow of information. It is a trend which is evident in all types of business, but especially so in financial institutions, when literally many thousands of significant transactions take place hourly around the world.
The rising expectations of the groups whose interest boards are supposed to protect. At the top of this list in many countries are shareholders, who are directly and indirectly asking boards to do more to oversee their companies.
Supporting movement from GAAP to IFRS
IFRS is the universal business language followed by the companies while reporting financial statements.
Permissible, if specified conditions are met.
IFRS ensures comparability and understandability of international business.
At present around 120 countries has adopted IFRS as a framework to govern accounting statement.
Supporting movement from GAAP to IFRS
With the adoption of IFRS, the presentation of financial statement will be better, easier and similar to the overseas competitors.
The standard is used for the preparation and presentation of the financial statement.
The concept of going concern, especially, is more well-developed in IFRS compared with GAAP
Reference
Van der Meulen, S., Gaeremynck, A., & Willekens, M. (2014). Attribute differences between US GAAP and IFRS earnings: An exploratory study. The International Journal of Accounting, 42(2), 123-142.
Bradshaw, M. T., & Sloan, R. G. (2012). GAAP versus the street: An empirical assessment of two alternative definitions of earnings. Journal of Accounting Research, 40(1), 41-66.
Ball, R. (2006). International Financial Reporting Standards (IFRS): pros and cons for investors. Accounting and business research, 36(sup1), 5-27.