Discussion on Whether the Current Accounting Standards are Ideal

The standards are supposed to be able to serve the stakeholders in the international financial sector including but not limited to equity holders, creditors, lenders among other stakeholders in the financial investment sector. AT the time in which IASB took the mantle from its predecessor, IASC had not been able to come up with acceptable and desirable international Financial Accounting Standards (Kolev, 2008). The implication of the same is that many countries were reluctant to consider taking part in and recognizing International Accounting Standards. The situation of non-recognition of International Financial Reporting Standards (IFRS) as it was then known had been prevalent even among multinational corporations which did business across borders. Despite the long term non-recognition among the cross border business practitioners, there were two landmark events that had the implications of shifting the paradigms in favor of the International Financial Reporting Standards (Brown, 2011).

One of the things they indicated was that their position seeks to advance the dual goals of the United States in improving financial reporting internationally and eliminating the disparity between and among countries in accounting (Christensen, 2012). The commission noted that this is something they have been committed to and that they indicate it in their 1988 report (Tyson, 2011). The commission indicated that they have in place a policy statement which is aimed at ensuring that they have international accounting standards which were mutually acceptable which augmented and facilitated protection of investors (Ryan, 2008). In the statement of the commission, the commission was keen to indicated that they working towards reduction of regulatory impediments into a system which facilitates cross boarder capital transaction without the complications which come from the disparity of accounting standards from one county to another (Kolev, 2008).

The commission in their statement was keen to indicate that they had formerly issued a concept release on the accounting standards that would be acceptable to most countries, if not all (Bradshaw & Miller, 2006). In the report, it has been recognized by the US commission that having in place a system that supports principle based accounting would lead to several benefits. This position is shared by the International Accounting Standards Board (Daske, 2006). Some of the contemplated benefits of this proposed convergence include but not limited to the following: i. An improvement in the global economic growth rate. ii. One of the things in which the Commission took the task of addressing in their concept release was whether companies could use the IFRS without having them conform to the GAAP (Alexander & Jermakowicz, 2006).

In the latest statement from the commission, the commission saw it wise to adopt rules and regulations aimed at recognizing the use of IFRS in a regulated manner without having to restructure them to conform to the US GAAP (Perry & Nölke, 2006). The initiative to recognize international accounting standards formulated on the principle-based basis and high quality accounting has also been recognized and advance by the G-20. Whether IFRS is better than US GAAP The question concerning which accounting standard is better between IRFS and GAAP goes to the core of what is considered better between principles and rules (Brown, 2011). While IFRS propose a principle based accounting, GAAP stand for rules based accounting with rigid framework that needs to be followed to the letter.

The US has also come up with proposed solutions of harmonizing the accounting rules and standards to conform to the IRFS and the GAAP combined. Since the year 2005, the US Commission has been working on the manner in which the two sets of accounting can be harmonized (Ryan, 2008). At present, there is need to appreciate that there are significant differences which make the two unable to conform to each other (Baber & Gore, 2008). One of the milestones achieved by the United States in the quest to eradicate this conflict in accounting standards is to come up with mechanisms within which companies can apply the IRFS without having to bend it to conform to the GAAP which is a national requirement (Christensen, 2012). The implication of this initiative is a flexible system in which companies operating at the global scale such as multinational conglomerates can turn to using IRFS within the United States without having to change the financial reporting standards in branches they have in the US.

One of the international organs is the European Union which gave its unwavering support for the adoption of IRFS as a common standard for international accounting as well as for domestic accounting (Perry & Nölke, 2006). At the present, if one intends to make s financial statement that goes to the global scale such as the platform of an international organization, the way to do it is to adhere to the principles base IRFS system as opposed to the rule based GAAP standards (Bradshaw & Miller, 2006). The other form of recognition that puts IRFS in the international roadmaps is the fact that most international exchanges prefer IRFS to US GAAP. Most of the international exchanges have adopted the IRFS since they are put in place by the body recognized for international standardization of accounting, inter alia (Kolev, 2008).

The International Accounting standards Board has been able to cultivate a normative culture in most international exchange making it possible for such exchanges to prefer the internationally recognized and preferred accounting standards as opposed to eth US based GAAP (Baber & Gore, 2008). IRFS makes it possible for accountants to come up with clear and logical decision making that takes care of some of the most critical and necessary situations. IRFS puts the accountant first and the entries second, GAAP on other hand puts the entries first one the accountant second (Tyson, 2011). Under IRFS, there is a critical and sensitive role to be played by the accountant. Since the accounting standard uses principles as opposed to rules, the accountant is elevated into a position in which he has to decide which principle ought to apply and the manner in which the same needs to be used.

It is necessary that financial transactions be represented in a manner that takes care of all the necessary considerations including the reason as to why the accountant arrived at a decision (Ryan, 2008). In this regard, an ideal financial reporting standard would be achieved in the event that the two are brought together in harmony so that both can apply side by side in eliminating the demerits or each standard while embracing and promoting the merit of each of the standards (Christensen, 2012). The problem with this attempt to harmonize the two is the fact that they stand for two contrasting and different notions (Perry & Nölke, 2006). While one has clearly defined rules which need to be followed, the other one is bit more flexible in indicating principles which do not mandatorily bind.

Perhaps a loophole can be found in GAAP when it gives a leeway for departure from GAAP when the situation demands or when it becomes evident that application of the standards would lead to an absurdity or misleading financial statements. Disadvantages of having one global standard Problems of Integration While there are notable advantages of having one global standard, the same comes with some disadvantages to the stakeholders in the field. It is quite absurd that small business spend much of their revenue in complying with the regulations of the state as compared to the large corporations which have very high revenue (Perry & Nölke, 2006). Research indicates that small business with below twenty employees spend about, $10,585 on regulatory compliance for every employee as compared to their large counterpart of above 499 employees that spend about $7,755 for every employee.

Further, it is indicated that tax compliance also takes a big effect on the small businesses. Pursuant to the research by IRS, Quantria Strategies and IBM, small businesses with five and below employees spend about $7,274 for every employee while their large counterparts with fifty and above employees spend $296 per employee (Tyson, 2011). The cost of tax compliance and regulatory compliance makes small companies and business lose a lot of money (Ryan, 2008). The same applies to any other country of nation of the world. The implication of adopting a uniform accounting standard globally is that the standards are likely to contradict or be repugnant to the internal or domestic laws of the state. In the US for example, the IFRS would sharply contradict with the GAAP.

Problems concerning Enforcement of the International Standards In the event that there is a paradigm shift inn favor on international accounting principles, there would be need to have an enforcement mechanism (Jermakowicz & Gornik-Tomaszewski, 2006). Since the domestic accounting system of a nation can be enforced easily through the police power of the state, there is need to have an international accounting enforcement mechanism that can be used effectively in ensuring compliance. Russia v. Malaysia vi. Colombia The current accounting standards are not the ideal standards The assertion that the current accounting standards are not the ideal standards makes sense because of the conflict between IFRS and the GAAP (Bradshaw & Miller, 2006). Since GAAP is a domestic accounting standard for the United States and since it is not widely recognized in most counties, it cannot be properly said to be an ideal standard.

Further, GAAP which is a rule based approach to accounting has been castigated for being rigid hence not taking care of peculiar situations in the process of financial reporting (Brown, 2011). This could be for example the stock exchange market. Key Areas of the Work Plan for US The Securities and exchange commission has been in the forefront in determining issues concerning accounting, including the proposed transition from the GAAP to IFRS. There is established a work plan on matters concerning the transition, the work plan is a detailed description of the manner in which the work of transition shall be done. In the first two areas of the work plan, looks into the traits of IFRS. The work plan under this section considers the most important determination by the Exchange commission concerning whether or not it would be proper or appropriate to include and incorporate IFRS into the accounting standards of the United States.

Further, they are proposing a gradual change from the GAAP to the international standards. This is not however the case in most countries: There is a complete transition from the rule based approach to the principles based approach (AAAFASC, 2006). When this is looked at properly, it appears that most counties are ousting their domestic standards and replacing them with the international acceptable standards. Canada, Mexico, Vietnam among others are some of the counties that propose to have a complete transition to IFRS (Perry & Nölke, 2006). Advantages and disadvantages of US GAAP One of the advantages of rule based approach as advanced by the GAAP is clarity. The implication of the same is that the reporting might be misleading to many who may be in the position in which their interpretations are needed (Jermakowicz & Gornik-Tomaszewski, 2006).

Further, the fact that the rigid framework does not allow for much alternations and adjustments but can give results which differ from company to company, the underlying implication is the fact that the results cannot be compared side by side. It is not easy to understand or explain why there is a variance from one company to another. The other problem with GAAP is that there is an increase in risk of getting the wring outcome in the event that the rigid rules are not followed to the letter. One can give a very misleading financial information in the event that they commit a mistake in the process of coming up with accounting records and standards (Alexander & Jermakowicz, 2006). The other advantage of this set of accounting formulae is the fact that it supports increased comparability between and among similar transactions among companies.

In IRFS, similar transactions can be compared in terms of the manner in which they are represented (Brown, 2011). The transactions can be represented in a logical manner that can be followed up and compared from step to step. One can clearly look at the statement of one company and reflect the entries in the other company. The implication of the same is that the counting formulae provides a mechanism for standardization of entries from one company to another, provided that the transactions are similar (Perry & Nölke, 2006). IRFS have a lot of variations from one scenario to another; this variations can sometimes be misleading on someone attempting to interpret the financial records of similar transaction from one company to another (Christensen, 2012).

The variations makes the interpretation difficult since the person integrating the financial records might not be in a position to think like the maker of the statements did at the time in which he was coming up with the records. The implication of the variations with regard to interpretation is that it leads to a complex accounting and financial reporting (Alexander & Jermakowicz, 2006). One needs to be more vigilant and keen in the bid to understand the requirements and the actual financial presentation done by the accountant. Whether IFRS is better for the US and the other countries IFRS is definitely better for the US and other countries. In the event that there is a drastic change which requires additional expenses to comply with, small businesses are the most affected.

Thus change of financial accounting standards is likely to case devastating effects on small businesses. On the positive, the transition shall have an implication of creating a uniform accounting for businesses across the globe. One of the reasons as to why the transition is supported in the first place is due to the fact that it has the implication of creating a harmonized system of accounting that extends beyond national boundaries (Perry & Nölke, 2006). Businesses can therefore compare their performance with the performance of their counterparts across the globe. However, this does not mean that all the employees including the performing ones will be sent home, only employees who cannot deliver are reasonably expected to suffer the contemplate fate because their services will no longer be required due to the fact that new knowledge will be required (Brown, 2011).

The transition’s influences for accounting firm and accountant The implication of the change of accounting standards from the rule based approach under the GAAP to standard based approach indicates that accountants who have been accustomed to the GAAP rules would have to burn the midnight oil in understanding the manner in which IFRS principles need to applied perfectly (Perry & Nölke, 2006). The accounting firms and accountants would need to understand the fact that there is change from rules to principles. Application of principles is a little bit different because it does not provide things in the mandatory as was the case in GAAP rules (Daske, 2006). Accounting firms and accountants are therefore supposed to consider expanding the scope of their knowledge in IFRS before proceeding with their ordinary jobs.

The possibility to create an ideal standard The possibility to create an ideal standard in accounting can be achieved in the event that IFRS or any other acceptable international accounting standard is improved and revised to make it achieve the element of high quality standard acceptable to the stakeholders in the financial sector. One of the most important things to note is that there is already a good standard which can be improved to become the ideal standard (Brown, 2011). IFRS which is principle based is accommodative enough to graduate and become the ideal standard. In the event that the standard is elevated and reformed to match the qualities of an ideal standards of accounting internationally, the resultant implication will be a standard that is not only acceptable to the stakeholders as a global mechanism for international financial reporting or accounting but also one that meets the sensitive element of high quality as recommended (Perry & Nölke, 2006).

The current standards are not ideal standards, but with proper upgrade to a single and quality standard, an ideal standard would be ideal (Jermakowicz & Gornik-Tomaszewski, 2006). There are concerns that the country needs to move and join the rest of the world in a level platform accounting which is harmonized across the borders. The same development is evident in England, Canada, among other countries which have not migrated to the internationally recognized accounting standards. At the moment, very many counties are in the process of transition and majority has made the transition. Though this transition comes with a lot of benefit, there are also some fundamentally notable demerits of adopting IFRS one of the major demerit is the fact that the accountant is given a wide discretion which can be used in manipulating accounting or financial records.

The other problem which is associated with the discretion is the fact that when it is exercised in an expansive manner, the implication is an accounting system which gives some significant variance on the same set of transactions. R. , & Gore, A. K. Consequences of GAAP disclosure regulation: Evidence from municipal debt issues. The Accounting Review, 83(3), 565-592. , & Miller, G. S. Will harmonizing accounting standards really harmonize accounting? Evidence from non-US firms adopting US GAAP. Journal of Accounting, Auditing & Finance, 23(2), 233-264. Bradshaw, M. Brown, P. International Financial Reporting Standards: what are the benefits?. Accounting and business research, 41(3), 269-285. Christensen, H. B. Gornik-Tomaszewski, S. , & Showerman, S. IFRS in the United States: Challenges and opportunities. Review of Business, 30(2), 59. Hail, L. Jermakowicz, E. K. , & Gornik-Tomaszewski, S.