Globalization is a trend that businesses can not ignore. International Financial Reporting Standards (IFRS) from US GAAP began in early 2005, and many European Union countries have adopted techniques that prepare their financial instruments in accordance with new standards. Since 2005, many states designed to transition to US GAAP have considered the application of IFRS. New Zealand, Canadian and Australian countries already apply IFRS, while Japan plans to do so until 2011 and in the United States by 2014; a huge change that affects everyone.
Now that we are presenting the history of international financial reporting standards in the background, it is important to know the most important differences in comparing US GAAP and IFRS. The introduction of IFRS does not allow the use of Last in First Out (LIFO) as a cost-of-expenditure method. To my knowledge, however, only a few companies, about ten percent, still use LIFO. IFRS Accounting Conventions are more general than GAAP with very few instructions for each industry. IFRS applies a one-step approach to impairment over the two-step method supported by US GAAP. According to the one-step method, records are likely to be more likely to occur. Overall, the most important and most important difference is that IFRS provides far less specific details and requires fewer requirements in the report than GAAP.
The main differences between international and US standards cause some benefits and disadvantages. Detail was the most important factor that has been successful for GAAP for many years. Eliminating the required specifications can cause uncertainty and mistrust in auditing and fraudulent scandals in the accounting world. Shareholders and creditors can lose their faith as a result, and will not be shown in full detail. So frightened, this can affect many other areas of our economy. I have never heard of anybody who invests something in something that he almost does not know about; rock investments have been made. To paste it into perspective, the & # 39; book & # 39; Generally Accepted Accounting Principles are ten inches thick, while International Reporting Standards are only between two and three.
No matter how you look at it, the main purpose and reason for the transition to IFRS is to make everyone financially sound at the same level globally. The formulation of these allows domestic companies to present their finances at the same level as foreign competitors. In addition, companies with affiliates on other continents will be able to make statements in a world-recognized universal accounting language that everyone understands. Although all this seems simpler and less confusing, the only way for IFRS is to make a hundred percent of complaints to businesses. Complete transformation will not overcome the main goal – global comparability.
The main goal of global transformation can be difficult to achieve. Many believe that the United States' Generally Accepted Accounting Principles are proven and a true standard for US accounting success. We need to ask whether something would be lost by adopting international standards or if it would be completely incompatible. There are two issues that may raise the issue for certain companies to face whether they are transformed or not. At some companies or regulators, some companies must adhere to GAAP. One thinks that regulation and the authorities will change, but it is uncertain now. Moreover, there will be little incentive for companies to transform if they do not have a market incentive to make their statements a new one. For example, perhaps the company is dealing exclusively with a small domestic industry. Stimulation needs to be created. Hopefully, once the compe- tencies of one of the companies return, all others will follow for some reason.
Overall, the idea of introducing world-class standards is a bold and well thought-out idea. If properly implemented, global accounting language can conquer foreign investors and may create more interest in our economy, possibly providing incentives. The advantages and disadvantages are quite clear; the only thing we need to do is to accomplish a global transformation. If IFRS becomes unsuccessful and GAAP can be re-entered, economic instability can occur. Of course, no one wants to invest in an unstable market.
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