Perspectives

No convergence?

As the US continues to drags its heels over adopting IFRS, does it matter, given that the rest of the world is coming together?

An article from AB Accounting Singapore with contributions from Francesco Nagari, Deloitte's Global Insurance IFRS leader.

Globalisation has been a powerful force behind moves to converge accounting standards. This was one of the primary motivators for the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) to begin formal negotiations after 2002 to align their respective standards: the International Financial Reporting Standards (IFRS) and the US generally accepted accounting principles (US GAAP).

There are numerous differences between IFRS (which is already in use or will be soon in more than 120 countries) and US GAAP. The oft-cited difference, though, is that IFRS is principles-based, while US GAAP is more rules-based.

Proponents have long argued that convergence would facilitate cross-border investments and reduce, or eradicate, regulatory arbitrage. It would also create greater certainty for users of financial reporting by making comparisons easier, while companies themselves would benefit from lower compliance costs from needing to adhere to only one set of standards.

Convergence is also supported by the accountancy profession by reducing the burden of knowledge and specialisation needed to prepare two sets of accounts for one entity.

The impetus for creating aligned standards grew after the financial crisis of 2008, with the International Federation of Accountants, among others, maintaining that the need was greater than ever to support a sustainable economic recovery based on a stable platform of transparency.

Nonetheless, convergence has had its detractors, too. 

This article was originally printed in the Singapore edition of AB Magazine in May 2014. It is included here with permission.

There are numerous differences between IFRS (which is already in use or will be soon in more than 120 countries) and US GAAP. The oft-cited difference, though, is that IFRS is principles-based, while US GAAP is more rules-based.

 

Proponents have long argued that convergence would facilitate cross-border investments and reduce, or eradicate, regulatory arbitrage. It would also create greater certainty for users of financial reporting by making comparisons easier, while companies themselves would benefit from lower compliance costs from needing to adhere to only one set of standards.

 

Convergence is also supported by the accountancy profession by reducing the burden of knowledge and specialisation needed to prepare two sets of accounts for one entity.

There are numerous differences between IFRS (which is already in use or will be soon in more than 120 countries) and US GAAP. The oft-cited difference, though, is that IFRS is principles-based, while US GAAP is more rules-based.

 

Proponents have long argued that convergence would facilitate cross-border investments and reduce, or eradicate, regulatory arbitrage. It would also create greater certainty for users of financial reporting by making comparisons easier, while companies themselves would benefit from lower compliance costs from needing to adhere to only one set of standards.

 

Convergence is also supported by the accountancy profession by reducing the burden of knowledge and specialisation needed to prepare two sets of accounts for one entity.

This article was originally printed in AB Magazine.
Did you find this useful?