Presentation Discussion
Beast8484
my_group_-_for_convergence.pptxGlobally Accepted Accounting Standards Pro Convergence
Contributors
Schyler DeChane-Crawford, Christa Carbone, and Geoffrey Brown
Brief Overview
Converging U.S. GAAP and IFRS would be beneficial to all scales of business in a myriad of ways. First, convergence will create uniformity in the accounting statements and financial dealings. This uniformity is the primary benefit from which many others stem. The reconciliation of these accounting standards will provide a better means of comparing organizations of related business on a global basis. Secondly, it will be easier for investments to be made in any organization without the limitations posed by the different systems of operation. With these, firms and individuals will have widened entrepreneurial opportunities to venture into. Merging U.S. GAAP with IFRS will also make evaluation of U.S. organization’s performance more efficient, as the principles would match with those of IFRS. (Bohusa 2015) Mergers and acquisitions of foreign companies would be easier and less expensive if standards were globally consistent. Additionally, foreign companies would want to invest additional capital in U.S. markets because of the decrease in costs that convergence would lead to. (Fogarty 2011) In conclusion, financial statement convergence would be beneficial to all parties involved.
Benefits of Convergence
Improved financial reporting within the US and abroad.
Reduced country-by-country disparities in financial statement reporting.
Improved comparability for investors across global firms and industries.
This is the benefit cited as being the most important across the board for all financial statement users.
Reduced listing costs for companies with multiple listings.
Increased competition among exchanges.
Better global resource allocation.
Lowered costs of capital.
Higher global economic growth rate.
Streamlined accounting processes for multinational corporations.
Easier access to foreign capital and improved liquidity.
Why not just adopt IFRS instead of converging with US GAAP?
Commenters of convergence, such as Investors and Accountants alike, believe that IFRS alone is not an adequate set of standards for global financial statement representation because
IFRS is not sufficient and lacks necessary guidance in significant areas
IFRS is not consistently applied across jurisdictional areas with could pose problems with global application
The achievement of implementing IFRS would require consistent application, auditing, and global enforcement. Who would do that?
(Murphy 2010)
A Brief History of the SEC’s Steps Towards Convergence
2000 - The Commission issues a concept release on global accounting standards. The Commission was seeking commentary from financial statement users/readers on the elements that would be necessary to encourage convergence of standards while also keeping the integrity of domestic financial reporting and presentation. Additionally, within this concept release, the Commission considered accepting IFRS prepared financial statements of foreign private issuers without reconciliation to US GAAP.
2002 - The Sarbanes-Oxley Act (SOX) is enacted. The FASB and IASB also begin a formal process to converge US GAAP and IFRS.
2003 - The Commission staff issued a study on the adoption of a principles-based accounting system, such as IFRS, in the United States that included 6 key benefits of standardization through convergence.
2006 - The FASB and IASB issue an updated memorandum of the joint scope of work to improve and promote the convergence.
2007 - The Commission issues a concept release regarding whether US Issuers should be able to prepare their financial statements in accordance with IFRS and they also adopted rules that allowed foreign Issuers to make filings with the Commission using IFRS prepared financial statements without reconciliation to US GAAP.
2008 - In September, the 2006 memorandum is updated to identify critical targets for convergence. In November, the Commission wrote the Proposed Roadmap for convergence. The Proposed Roadmap had a target convergence date of 2011 with a "go-live" date in the US of 2014, with some issuers opting in as early as 2009.
(Murphy 2010)
1988 - The Commission issues a policy statement in support of the establishment of globally accepted accounting standards, provided that investors are still protected. The Commission believed that these standards were critical to reduce the regulatory constraints on global transactions that stemmed from disparate accounting standard frameworks.
1997 - The International Accounting Standards Committee (succeeded by the IASB) is encouraged to develop a core set of accounting standards that could serve as a framework for the globally accepted accounting standards of financial reporting worldwide. These standards are now known as IFRS.
References
Bohusa, H., & Svoboda, P. (2015). IFRS AND US GAAP CONVERGENCE IN AREA OF MERGES AND ACQUISITION. ECONOMICS AND MANAGEMENT, (14), 20-27.
Fogarty, M. (2011, January 21). The Pros and Cons of Converging with International Financial Reporting Standards. Retrieved August 24, 2016, from http://www.eisneramper.com/Pros-and-Cons-of-International-Financial-Reporting- Standards.aspx
Murphy, E. M. (2010). SECURITIES AND EXCHANGE COMMISSION RELEASE NOS. 33-9109; 34-61578 Commission Statement in Support of Convergence and Global Accounting Standards. Retrieved August 28, 2016, from https://www.sec.gov/rules/other/2010/33-9109.pdf
