The article Advantages and disadvantages of IFRS compared to GAAP by Anna Jordan aims at giving a complete picture of the ongoing switch to the new reporting system in the United States. While the author does not summarize its statements or try to weight the listed arguments and give any definitive conclusion regarding the outcome for the businesses in the country, in nevertheless leans towards the view of the IFRS as a positive force. Despite the broad scope of the article, some of the issues regarding the reform escape the author’s focus while others rely on controversial assertions.
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Jordan recounts such benefits of switching to IFRS as a focus on investors, loss recognition timeliness, comparability, standardization of accounting and financial reporting, improved consistency and transparency, better access to foreign capital markets, and relevance (Jordan, 2013). All of the advantages are well-considered and are mentioned by most of the IFRS proponents. What falls out of the scope is the number of issues that follow almost each of these benefits.
For instance, while the focus on investors and standardization are often cited as sources of revenue growth, the actual benefit observed in the EU countries switching to IFRS is unsystematic and uneven. The comparability, which is often named the key improvement, is somewhat contradicted by the principle-based nature of IFRS. While there is little doubt that fewer rules and exceptions are easier to apply compared to the current GAAP system, it also introduces vagueness and gives way to interpretation.
Finally, better access to the foreign capital markets and investments is without a doubt a step forward for multinational companies, which operate using several reporting systems and are forced to constantly convert them. However, it has little to no impact on smaller businesses which will have to allocate resources to reform their accounting but will not see any revenue afterward. Finally, the article omits the fact that GAAP is constantly changing to become more compatible with IFRS without radically shifting to the new system.
Taking into account all said above, I think that IFRS is still a change for the better. However, the improvement will not be as radical as it is usually pictured, as GAAP is ultimately heading to the same goal, only through different means (e.g. the complex rules). Besides, while the overall impact will be positive, it will also be uneven, with some entities gaining more than others while others suffering complications without any benefits.
FASB Standards Discussion
Financial Accounting Standards Board (FASB) is an organization that develops and implements the accounting standards, known as GAAP. Such standards are necessary for several reasons. The goal of FASB is to “provide users of financial statements with information that is clear, useful, and relevant to their needs.” (FASB, n.d.) Such clarity and relevance create a favorable climate for the company to attract investors and seek partners.
Additionally, the recent focus of FASB is narrowing the comparability gap between GAAP and another massively popular system – the IFRS by IASB. Thus, the standards may be viewed as either a way of bringing reporting to a single set of principles or as a necessary transition strategy. In any case, the benefits of FASB standards are obvious. Finally, in light of the recent decision to switch to the IFRS system, FASB’s standards may be viewed as a necessary competitor to it.
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As long as there is competition, we can be sure that neither organization stops in its development and will continue to improve the clarity, efficiency, and transparency of its standards to appeal to an as large audience as possible. Thus, they are necessary both as a functional system for current use and as a motivating factor for global improvement.
FASB. (n.d.). Comparability in international accounting standards – an overview. Web.
Jordan, A. (2013). Advantages and disadvantages of IFRS compared to GAAP. Web.