For example, there are many SEC registered companies, and they are not all American companies. Many of them are actually headquartered in foreign countries. In the past they had to change their accounting and financial information over to GAAP requirements, but changes are allowing companies to continue to use IFRS instead. Some of the U.S. based companies are also going to be allowed to use IFRS in order to help foreign investors better understand how they match up with competitors from other countries (AICPA, 2008). In the next few years, all companies (U.S. And otherwise) may be using IFRS (Bradshaw, et al., 2010).
When addressing the disclosure levels to which companies have to adhere, IFRS and GAAP are not so different. The differences generally come into play with the specifics of the issue, because there are certain documents in which specific information needs to be provided, and those documents can vary greatly between the two types of reporting standards (AICPA, 2008). Because the documents are different between the reporting types, the way the information is presented and even the way it is collected can vary. That means both of those issues would need to be addressed by any company that is going to move from the GAAP system to the IFRS system or vice versa. The current idea is to move all companies over to using the IFRS system, including companies that are based in the U.S. That will require U.S. companies to spend time learning how to use the IFRS system, which will require a degree of time and effort (AICPA, 2008). Currently, the IFRS system is more strongly principles based, while a more rules based approach is taken by the GAAP (Gucenme & Arsoy, 2005).
The GAAP has highly specific guidance in the way it is applied, and the IFRS is less specific, making its application more limited in some ways. Overall, the biggest difference that is seen between the GAAP and the IFRS is how strict the rules are (International, 2007; SEC, 2008). The GAAP requirements are very heavy on the rules that are set out for the companies that must report under it when it comes to their financial dealings and accounting. The IFRS is much less specific in its requirements, and the rules that it requires companies to follow are far more relaxed in nature. Whether this is good or bad obviously depends on which side of the issue one is on and what one is attempting to do with the information he or she hopes to acquire about a company's financial status.
It is important to clarify that the idea that the IFRS is less rules-based does not mean that it is an unacceptable method for international accounting standards or that it is lax. Instead, it only means that there are differences in the ways in which information can be, should be, and is provided. Moving to that system would mean changes in the strict way U.S. companies have to provide their accounting and financial information under the GAAP standards that they currently use. It would seem as though this would be a very welcome change, but that may not necessarily be the case for some companies. The lack of any real rigidity in the requirements provided by IFRS can complicate the providing of financial information for people who are used to handling the issue in a particular way. Creating the reports will take time, and what goes into them will also be more subjective.
Theories and Debates
Anytime that changes are made or changes are being discussed, there will be theories created and debates started as to what will be done and why it should (or should not) be done. There are many companies that want to see the changeover to IFRS standards, and nearly an equal number of companies that want to keep the GAAP standards they are used to (Crovitz, 2008). It is likely not going to be possible to see agreement between all companies as to what would be the best course of action. It is also possible that there could be a middle ground compromise made that would blend the two different reporting standards and allow all companies to have an adjustment period so that the change would not appear so jolting to them. It remains to be seen how the issue will actually be handled.
Right now, however, current discussion does not allow for a compromise. It is focused on a one-or-the-other approach in that either the GAAP...
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