International Accounting Standard Board Essay

International Accounting Standard Board Essay

Instructions/Descriptions

International Accounting Standard Board Essay

I need credible responses for two articles. For the first article, I need two different responses. One of those two responses should have a reference.

Article 1

Summary

For some time, the International Accounting Standard Board (IASB) has been involved in efforts to develop understandable and enforceable International Financial Reporting Standards (IFRS). The goal for the standards are to be able to serve equity investors, lenders, and creditors, as well as others, in globalized capital markets. This has greater importance as a global economy has become a reality requiring high-quality standards to be applied across the board. Prior to this time, few countries had adopted what was then known as the International Accounting Standards (now known as the IFRS). This changed, largely due to two main events. The first occurred in 2000 when the International Organization of Securities Commissions (IOSCO) endorsed IFRS for cross-border securities offerings in the world’s capital markets. Subsequently, in 2002, The European Union (EU) decided to require IFRS for all companies listed on a European stock exchange to begin in 2005. After those two events, as of today, nearly 100 countries require IFRS, or some very near equivalent.

Effective October 2002, the IASB and FASB signed a memorandum of understanding known as the Norwalk Agreement to make their existing financial reporting standards “fully compatible as soon as is practicable” and to “coordinate their future work programs to ensure that once achieved, compatibility is maintained”. The phrase “fully compatible”  was, in general, understood to mean that compliance with U.S. GAAP would also result in compliance with IFRS. Several short-term and longer-term convergence projects have commenced with the goal of eliminating differences between the two sets of standards. It was agreed that if U.S. GAAP had the preferred standard, it would be adopted by IFRS and vice versa, as well as if there were improvements to both standards, that the Boards would work together to that end.

Reaction

It is apparent that there is a need for international reporting standards. It is equally apparent that it would be unrealistic for the world to conform to the FASB standard, just as it is unrealistic for the US to conform, unilaterally, with the IFRS. The solution, therefore is to take all of the best parts of FASB and marry them with the best parts of the IFRS, which is, convergence. It is arguably, in the global economy, in the best interests of all concerned to have a single standard. This standard has yet to be developed, or adopted, fully. We are, however, much closer to that eventuality than ever before. So, has convergence worked? In many ways it has. The SEC made a major ruling in 2007 eliminating the requirement that a foreign issuer using IFRS must present a reconciliation of profit or loss and owner’s equity to amounts that would have been reported under US GAAP. This is a major milestone in the creation of a single reporting standard and is, I believe, long overdue. For the world markets to operate effectively, there needs to be clarity and the convergence of US GAAP and IFRS will be a major step in obtaining that clarity.

Reference:

https://www.journal of accountancy.com/issues/2013feb/20126984.html

Article 2

To summarize the article overall, it is apparent that the main message coming across is that although many countries have adopted the same version of IFRS, there are a couple factors that could not only weaken the application of adopting IFRS but also weaken the comparability of the financial information from different countries.  These factors are national culture and the difficulty involved with translating the guidelines into specific languages.

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First, from a survey that was performed, it was determined that national culture can in fact affect the adaptation of IFRS because the more conservative the country, the higher uncertainty avoidance and lower individualism.  They also point out that higher secrecy in a nation means that some financial information may be restricted from external stakeholder’s access.  Based on the cultural values in a country, the methods of accounting or accounting values can differ which could then lead to differences in the financial statements and in turn hinders the comparability and consistency of statements in different countries.

Next, the difficult task of translating the principles and guidelines into different languages can be another factor that affects the success in application of IFRS.  The official language and published language of the IFRS is English and although some languages can be relatively to translate, other languages prove problematic because it could mean different interpretations of the regulations.  This means that if something is translated incorrectly or misinterpreted in a non-English speaking country, there is a threat of lack of comparability and consistency within financial information of different countries.

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My overall reaction is that this article was very informative regarding the problems one could face in the adoption of IFRS around the world.  The most interesting part to me, that I did not think of at first was the problems that could arise from the translation of the IFRS guidelines into numerous other languages.  It makes sense that this could be a problem because of the significant differences in the languages, but it is one that I would not have thought of.  It is obvious that it would not only be difficult to have the entire globe learn one standard language, but to decide on one language would be extremely difficult as well and this would take more time than one would really want to spend.

Tsakumis, G. T., Campbell, D. R., Sr., & Doupnik, T. S. (2009, February 01). IFRS: Beyond the Standards. Retrieved from https://www.journalofaccountancy.com/issues/2009/feb/ifrsbeyondthestandards

International Accounting Standard Board Essay

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