Why the US is not going to be converting to the IFRS
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Topic: WHY THE US IS NOT GOING TO BE CONVERTING TO THE IFRS
An IFRS (international financial reporting standards) is a set of accounting standards developed
by an independent organization called the international accounting standards board. The board
specifies exactly how accountants must maintain and report their accounts. IFRS was established
in order to have a common accounting language, so business and accounts can be understood
globally. This allows businesses and individual investors to make crucial financial
decision, as they are able to see what has been happening with the company in which they wish
to invest in. This is a body that has achieved almost a worldwide acceptance and adoption of its [0]
precious and hard-delivered.
However, the US which is the largest capital market in the world is still reluctant to incorporate [0]
IFRS into its financial systems of reporting, despite the recognition of IFRS on all continents
during the last ten years. There is still no sign as to when (if ever) the IFRS- Generally US [0]
Accepted Accounting Principles (GAAP) convergence would take place. Yet, there is no lack of [0]
public statements by the US Securities and Exchange Commission (SEC) and its staff expressing
the view that a single set of international accounting standards should be developed and accepted
by everybody. Most recently, the SEC's Strategic Plan for – Fiscal Years 2014 2018 stressed that [0]
“the SEC will continue to promote the establishment of high-quality accounting standards in [0]
order to meet the needs of investors. Due to the increasingly global nature of capital markets, the [0]
agency will work to promote higher quality financial reporting worldwide and will consider,
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among other things, whether a single set of high-quality global accounting standards is
achievable.” But the reality today—though all the joint IASB/US Financial Accounting [0]
Standards Board (FASB) projects are complete or nearing their completion is that the —
Convergence of IFRS and US GAA has not been achieved. There are some factors which are P [0]
preventing IFRS from becoming a financial reporting framework for US domestic
issuers.
Firstly, the US has a highly litigious business environment where, if something goes wrong, [0]
accountants and auditors are often blamed before anybody else (and then sued, alone or along
with th are even e reporting company's management) for investor or creditor problems that
tangentially related to reporting (be it truly an accountant's fault, management's fraudulent
reporting practices, or anything is else).In an environment of “high professional liability,” it [0] [0]
understandable and even justifiable that accountants in the US demand a highly elaborate setoff
very specific rules rather than “general principles” that “merely “declare neutrality and faithful [0]
representation, leaving a lot to preparers' judgment. There is no doubt that professional judgment [0]
is important and even critical for a high-quality reporting process, but at the same time, it is hard
to deny that in real life, along with judgment, come different and conflicting opinions, ranges of
estimates, and other “lee ways” that- may serve other interests. That is why the FASB keeps [0] [0]
generating very specific reporting rules, which, unlike IFRS, address narrow reporting issues and
business situations, thus creating potentially more and more differences with IFRS. It looks like
he war between the “principles” (IFRS) and the “rules” (as US GAAP is perceived by many, but [0]
admittedly, not very fairly) is far from over yet. Second, the FASB continues to work full swing [0]
on many -“non convergence” technical issues on its own (that is, without joint projects or [0]
consultations with the IASB), and frequently issues new technical guidance almost on a weekly —
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basis that sometimes diverges from IFRS. The list of recently completed projects on the FASB — [0]
website (for example, in July and August of 2015) shows that almost all of them address
relatively narrow, specific issues without corresponding changes being introduced by the IASB.
Thus, among the latest US GAAP standards are the following, none of which has a [0]
corresponding IFRS equivalent: Application of the Normal Purchases and Normal Sales Scope [0]
Exception to Certain Electricity Contracts within Nodal Energy Markets; Employee Benefit Plan [0]
Simplifications; Disclosures for Investments in Certain Entities That Calculate Net Asset Value [0]
per Share (or Its Equivalent); and Effects on Historical Earnings per Unit of Master Limited [0]
Partnership Dropdown Transaction s .New (however small) technical differences, along with the [0]
“old” ones, and those not eliminated in the course of past convergence projects (such as the good [0]
will calculation options, for example), keep building and expanding a body of diverging
technical guidance, which clearly does not facilitate the process of convergence or even
harmonization of US GAAP and IFRS from a pure technical standpoint. Additionally, even the [0]
joint IASB/FASB technical projects, officially labeled as “convergence projects, “at the end [0]
yielded (or, are expected to yield) somewhat diverge guidance. Examples of this divergence are [0]
the recently reached different decisions by the IASB and FASB on clarifications and
interpretative guidance to their respective revenue recognition standards; and detailed accounting [0]
rules resulting from the leases and financial instrument projects. The IASB/FASB parallel [0]
insurance projects have also not led to convergence in that important reporting area. The third, [0]
and the possibly main reason for the lack of convergence progress lies in the political arena, and
not technical, accounting area. It appears that the US is reluctant to give up the GAAP standard- [0]
setting authority over domestic issuers to a foreign, even truly international, body located in
London (with a second headquarters in Tokyo). Declaring (and rightfully so)that their main goal [0]
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is to protect US investors ‘interests, the SEC notes that IFRS lacks consistent application, allows
too much leeway with judgment, and is underdeveloped in many specific areas, for which the US
GAAP has detailed and accepted guidance and established practice (especially, in terms of
industry accounting and reporting, and many specific transactions, for example, the most recent
August 2015US GAAP guidance on the presentation of costs related to revolving lines of
credit).Expressing the view of the general investor constituency in the US on replacing US [0]
GAAP with a new set of global standards, in its July 2012 Final Staff Report, the SEC stated that
“investors do not believe that high-quality standards should be compromised for the sake of [0]
uniformity.” In other words, until the IASB's standards reach—in the eyes of the SEC and the [0]
hypothetical “US investor”—the high bar established for them by the US, it is not likely that the [0]
SEC and FASB would concede their standard-setting authority to the IASB. Moreover, the same [0]
report goes on to state that “further, investors noted that the FASB, in acting as an endorser, [0]
could serve an important role, ensuring that any standard incorporated into the US financial
reporting system is of sufficient quality so as to maintain or improve on the financial reporting
system. “This means that even in the relatively distant future, when (if?) IFRS are finally [0] [0]
adopted for US issuers, those standards still will be reviewed (and possibly, altered?) in the [0]
course of the FASB endorsement, in the name of the specific needs of the American investor. It [0]
is not surprising that the above-mentioned Final Report did not provide any conclusions or
recommendations to the SEC for actions with respect to IFRS in the US. If the SEC truly [0]
believes that a single set of globally recognized reporting standards is needed and that it would
benefit US investors even in the somewhat distant future it should develop a definitive — —
timeline for working toward that goal. Otherwise, the significant amount of work done over the [0]
years by many accounting professionals around the globe in the name of IFRS/US GAAP
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convergence may eventually dissipate, yielding to the fears (however justified they may be) of
the “underdevelopment,” “inconsistent application,” and “lack of enforcement” of IFRS.Trends [0]
in the IFRS perception and interest in the US If from 2000 to 2008 one could see some signs of
interest in IFRS and even public encouragement and initial moderate “excitement” about their [0]
use in the US, then 2009 marked the beginning of the period when IFRS started losing both
public and institutional support in the US:2009 The new SEC Chair expresses reservations — [0]
about IFRS to Congress.2009 The FASB and the FAF's response to the second SEC road map — [0]
is "wait and study".2011 The SEC staff reports on IFRS'sshortcomings.2012 The SEC — — [0] [0]
publishes a final staff report without providing a recommendation on IFRS adoption.2014 The — [0]
former SEC Chair, Mr. Cox, expresses limited appetite for IFRS in the United States. [0]
Concluding Remarks As discussed above, in its latest major strategic document, the Strategic [0]
Plan for Fiscal Years 2014 2018, the SEC mentions that it is willing to consider the idea of a –
single set of global accounting standards, however, it never refers to IFRS or the IASB in the
entire document. What set will it be? It is unlikely that US GAAP will become a “single set” in [0] [0] [0]
the future, given that the majority of countries around the globe have already adopted IFRS as
their reporting framework for public interest entities (such as listed companies, banks, insurance
companies, etc.). It obviously makes lot of sense for a globally interconnected economy to have a [0]
a single set of standards, expressing the underlying economics of a business regardless of the
country of its incorporation, and that set most likely Will be IFRS. However, the amount of time [0]
it will take for IFRS to be “admitted” into the US as an internal reporting regime, and then [0]
mandated for the domestic issuers, will probably be measured in decades, not years.
It is clear that the decision made by the US not to incorporate business activities in the IFRS
board are genuine and much varied for a thriving business. Failure of US to incorporate in the
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IFRS has a big impact on its growth financially. The set IFRS principles give a wide range of the
steps taken to control financial operators in case of failure, which reduce accountability. The laid
rules in the US that govern the financial operators improve individual responsibility thus eating cr
a conducive environment to do business. The IFRS board frequently issues new technical
guidance without consultation with IASB. This prevents the process of convergence or even [0]
harmonization of US GAAP and IFRS due to lack of consultation in their activities. Reinventing [0]
ERM and Internal Audit: Accountants Need Drive Radical Change by Tim J. Leech FCPA to [0] [0]
FCA CIA CCSA CRMA, Managing Director, Risk Oversight Solutions Inc. | April 11, 2017
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Bibliography:
PAUL PACTER, CPA, PH.D. What have IASB and FASB convergence eeforts achieved?
February 1, 2013 [0]
Alex Bogopolsky, CPA, DipIFR, MBA; Member of AICPA and Ukrainian Federation of [0]
Professional Accountants and Auditors | September 11, 2015 | 1
Tim J. Leech FCPA FCA CIA CCSA CRMA, Reinventing EMR and Internal Audit:Accounts [0] [0]
Neefto drive radical change, Managing Director, Risk Oversight Solutions Inc. | April 11, 2017
On 4/22/17,
