Why more US companies would like to keep using US GAAP instead of IFRS

The international environment of US Generally Accepted Accounting Practices. Similarities of IFRS and US GAAP impact on Companies 20 4. Impact on corporate management 25 4. Impact on accounting professionals 25 4. Impact on Stocks 25 References 27 Abstract The historical development of different standards on the financial accounting in US accounting boards is all outlined in this research paper. US GAAP keeps business requirements equal and ensures uniformity in accounting. On the other hand, International Financial Reporting Standards (IFRS) are sets of accounting standards that were developed by International Accounting Standards and are becoming the global standards for the preparations of financial statements by companies. The American Institute of Certified Public Accountants(AICPA) is the authorized body that sets these standards. It receives directives from the securities and exchange commission(SEC) and bears the full responsibility to set the standards.

The history of US GAAP. This monograph also emphasized on “the view revenues expenses” to be practiced in the accounting in which there was a need to determine whether a transaction that has occurred will give rise to an expense or a revenue. Major companies started persuading the Congress in 1947-1949 to allow depreciation in costs on taxable income and they hoped to be supported by ARB in their grievances. The congress was then to amend the code for the internal revenue so that the companies could use the accelerated decline in value of assets on cost for taxable income purposes. The Congress also amended the internal revenues code to allow businesses to use the depreciation cost that was rising purposes of the tax on incomes in 1953.

The ARB committee accepted the pooling of interests in 1959 as the method of combinations of businesses in presence of certain circumstances (Delaney et al. In 1967, they issued a statement which was not mandatory, on the reporting of segments since the issues owing companies were too many and APB felt that there was no need to compel the companies to disclose their profits and their revenues but for issues related to competition, the companies were reluctant in disclosing them. The financial executive institute (FEI) researched on this subject matter to persuade the commission on the exchange of securities not to make tough rules on this subject that would negatively affect the companies. The APB failed to issue the requirements on opinion and segment reporting to be adopted by new issuers and companies filing annual reports (Delaney et al.

In 1968, the commission on security and exchange was required to discuss on management and operations analysis on the risks and uncertainties as well as investigate the companies risk impacts on liquidity and dissolution in future. The commission also expanded the disclosures that were required and those contained in MD&A. Therefore, the leasing industry had no other option than persuading the congress members so that they can stop the accounting principles board from taking action against them. In addition, the industry again prevented the accounting board from requiring the credit on investment tax and was amortized from the purchased assets service life instead of being deducted from the earnings (Delaney et al. In 1972, John C. became the first accountant of the commission.

He had not served in the SEC before therefore not conversant with SEC philosophical to the history of accounting APB thereafter issued an opinion 31 hastily which ensured the lessees to declare the rental data on non-capitalized leases to the public (Zeff,2005). In 1975-1981, there was a nationwide go slow and increasing prices of crude oil. The Congress passed a policy on the conservation act of 1975 which required the exchange commission to instructs all companies dealing with gas or oil to adopt similar accounting methods other than using the successful efforts costing or full costing (Zeff, 2005). The US high inflation accelerated FASB to issue a draft for authorizing companies to report the information on any price level adjustment in their statements. In 1976, the commission issued Accounting serial publication 190 which stated that all the companies were to disclose the impacts replacement costs changes in their supplementary disclosure.

Later they required all large companies to declare their costs impacts and all information on their dollar values (Zeff, 2003). In 1990, the FASB issued the SFAS 106 on the accounting costs for the post-retirement health care and in 1993 issued the SFAS 115 on the investments accounting both debt securities and equity certainty equity. The security and exchange commission argued on strong bases for fair accounting and whether the profits and losses will be channeled to the earnings, SEC solution was opposed by the banking industries because the earning were volatile. In 1995, SFAS 121 was issued and companies were required to perceive assets impaired value as well as restricting companies expanding the provisions ensuring future benefits. SFAS 130 was issued in 1997 which stated that the accounting of the comprehensive income, followed by the concept statement 3 that called for income reporting and inclusivity of all the profits and losses that were left out as well as suggestions on the disclosure in a separate statement of income.

SFAS 133 was then issued in 1998 on accounting for derivative instruments and other activities, even though the businesses and industries were against this FASB reasonable proposal. The most important differences between the two standards in the U. S include: Generally, US GAAP has more details and specific requirements than IFRS. In other words, US GAAP contains standards with more rules-based with the guidance of specific application while IFRS contains more standards that are principles-based on limited guidance application. The reason for this difference is that the fundamental differences between FASB and IASB frameworks of concepts. According to a security and exchange commission, FASB financial accounting concepts and IASB preparation of financial statements frameworks differ with concepts that are underlying. On the contrary, IFRS used broad principles in accounting for transactions for industries.

Only a single setter developer has created IFRS i. e. the International Accounting Standards Committee, (IASC) (Barth et al. The US GAAP income criteria for discontinuing operations on income statements and disclosures of disposals at an entity discontinued classification is for all the components intended for sale or those disposed of provided no significant continuity of cash flows or disposal component involvement. Another difference is that for US GAAP, transactions that result in the control of the loss due to the subsidiary, any of the remaining non-controlling investments in the earlier subsidiary is then measured to a fair value on control date, including the profit or loss of the income. The accounting is limited to the transactions like; absence of control of subsidiary for non-profit or business activity, loss of control for subsidiary that is not a business or non-profit activity etc.

On the other hand, IFRS is consistent with GAAP except that it is applied to all subsidiaries, including those that are not business or non-profit activities and those involving the sales like real estate. Profits or losses resulting from the losses of control of a subsidiary that does not constitute a business in a transaction involving a joint venture accounted for by application of equity method that is to acknowledge the extent of the investor's interests. For certain transactions for US GAAP, resulting to control of assets that gives the importance for business or an activity that is not profitable, any investment that is not controlling in the former class of assets is then measured to a value that fairly to the date of control that goes away with the profit or loss and includes the income together and any other profit or loss after selling of interest ownership.

In this case, joint control exists when two or more parties unanimously agree on the fundamental entity decisions. The parties have indirect rights and obligations with respects to the assets and liabilities of the entity thus acting as a joint operation. There is no permit for the proportional consolidation regardless of the business. However, when the joint operation is met instead of a joint venture, an investor will recognize his/her shares of the assets and liabilities, revenues and expenses and equity methods may not apply (Barth et al. The US GAAP accounting model requires the companies to record their taxes delayed as compensation cost recognition, as long as they allow the deductions due to tax for a particular instrument type.

The accounts for income tax results in companies to report under IFRS have greater unpredictability in their delayed tax account over the award life because of related changes for stock value development in each reporting period. The companies reporting under US GAAP could have more prominent unpredictability in their conceded assess accounts over the estimated delayed taxes that are recognized and the realized actual tax deductions. There are likewise differences in cash flows that are associated with tax benefits. The international environment of US Generally Accepted Accounting Practices. In order to have global comparable financial statements, the proposition to have harmony in accounting standards argues that single set of accounting standards could be used to ensure similar transactions would be equally treated by international companies around the world (Barth, et al.

Diversification in the study is the same as existing under any global form of standards of accounting. An experiment is provided in examining how a set of standards would be applicable in different companies coming from heterogeneous backgrounds. This study will incorporate US firms that use US GAAP to report and foreign companies that report in local GAAP. De Franco, 2011). Therefore, they enhance reference points in a close examination of compliance with US GAAP. De Franco, 2011). Earlier research shows a correlation between cash flows and accruals is less negative for companies writing based on US GAAP. The net revenue varies in clear ways under the US GAAP. However, conservatism is not practiced by US GAAP, it differs systematically globally and principles of accounting.

Accounts outputs in US GAAP converge significantly to those of US companies but the convergence is not complete. We discover that organizations that have high incentives got higher levels of disclosure compliance, there is no evidence of properties of accounting output differing across the range of capital market incentives. Evidence claims global adoption of one order of standardized accounting potential of increasing comparability of financial information across countries that have an economic, political and cultural difference. There is a crucial role in regulation which is less emphasized in original work. However, there is scant evidence to show that incentives of the capital market actually effect on standards of accounting implementation. Accounting differences across nations result in the similarity in transactions which are indicated differently.

Huge variation in earnings across different countries concludes that difference in international incentives in reporting inherently limit the extent to which international comparability of accounting information could be achieved through homogenization of accounting rules. Other inferences infer that non-US firm’s earnings reconciliation in home nations GAAP to US GAAP are hardly comparable to wages that are reported by US corporations. Both disclosure practices and accounting properties of information in accounting are most likely to fully converge under one set of a global accounting standard. Earlier studies indicated that one of the limitations on ability in generalizing results to outcomes that occur using one set of quality standards is the fact that papers mostly differentiate accounting in similar but identical standards of accounting.

Barth, et al. Examining the impact of the regulatory environment is achieved through the partition of commerce that cross-list on US trading and the ones that do not. Corporations that cross-list on US interchange are an issue to the US controlling evaluation. The study shows that US oversight body is firmer than the one tackled in other republics. The US SEC has opulent knowledge in rereading economic material which is reported according to US GAAP (Barth, et al. Compared to regulators who rarely review US GAAP financial accounts, increase in acquaintance would consent to US SEC to a more effective review of US GAAP financial reports. Most companies with some exclusions the audit estimation states that monetary reporting was completed through US GAAP (Barth, et al.

Some companies organize as reporting under US GAAP but essentially use other standards. While these firms are only found through reflection with clear miscoding, firms that are founded on other items noted during yearly report conference are excluded too. different nations are tested from six zones with more emphasis on Germany (32. Japan (20. This was steady with rules of reportage in Japan that for long allowed local firms trading on US connections to offer financial statistics under US GAAP. Therefore, control and attention of the firms reporting under US GAAP are constant with the changes in the economic markets that permit such reporting. The non-US firms’ model is the yardstick in the valuation of whether firms that purport to use US GAAP modify their accounting relative to other firms in their local countries.

In the primary trial, the study recognizes firms that track the local accounting standards. An attempt to match as close as possible on the industry, calendar year, and market value. Accounting standards managers and setters from around the world strive to match accounting standards with a goal to generate one set of high value of accounting to be practical around the world (De Franco, 2011). There exists little proof that exists concerning the possibility of this goal. The breakdown has covered the study of firms not in US that adopt US GAAP as uniform primary book-keeping to provide evidence connected to using a solitary set of detailed standards of accounting across varying organized and cultural backgrounds. Adoption of US GAAP significantly alters non-US firms re-counted method selections of accounting.

This affects the properties of conveyed accounting statistics in regards to accumulations, cash flow, and liberalism measures. The importance is documented by security experts and consultants. Bearing in mind a conversation about the growth of converged US GAAP and IFRS, “from a US outlook where the discrepancies are going to come into show …. ” We will get away from industry-specific literature?” (Amir, Harris, S, Venuti, & K, 1993). Under US GAAP, about 200 income rules are available, and many imitate industry variations. Investing, operating, and bankrolling events are shown in the firm’s economic reports where industry could be used as a substitution for firm’s fundamental changes. In deliberation are five detailed policies of accounting. To begin with, one is accounting for multiple component revenue credits for software.

It is an average under US GAAP that stuck out under IFRS in our sample period. The four other guidelines of accounting are in spaces whose accounting values are initiated under both US GAAP and IFRS and there is an anticipation that accounting strategies will influence incomes of businesses in some industries diverse than corporations in the extra industries. Investigation backs literature of the IFRS versus US GAAP by focusing on impacts if there are any of the business alterations which are simulated by US GAAP guidance than under IFRS have on earnings informativeness (Henry, E, Lin, & Yang, 2009). In step two, the carrying price then surpasses the fair value in reportage unit, the impairment control then becomes the indirect value of goodwill, derivative from a hypothetical acquisition price distribution, associated to the resonant value.

Under US GAAP, the goodwill is allocated to the entities reporting unit (De Franco, 2011). The impairment responsibility is the indirect worth of goodwill and if the resonant value surpasses the fair value of the recording unit the diminishing charge. Formally the first theory in regard to overall effects of US GAAP and IFRS impact on companies. IFRS usually give managers a better optimal over accounting strategies if accessible and application of accounting rules than US GAAP. Recognition of variance in productiveness in applying and setting accounting standards could produce more information signs that reflect both accounting values and institutional issues. The consequences suggest recognition of changes in the industry in applying and setting values of accounting to produce more educational earnings that reflect fundamental alterations.

Companies report greater earning under IFRS than in US GAAP irrespective of which industry that the company originates from. Therefore, corporations would be compulsory to reconcile company actions more than other organizational tasks from IFRS to US GAAP, if the Security Exchange Commission would not let IFRS to be used in the US (Amir, Harris, S, Venuti, & K, 1993). U. The change would afford corporate organization opportunity to increase capital under subordinate interest rates while declining risk levels and decreasing cost of running a business. Impact on accounting professionals The shift in the convergence of current standards to internationally accepted ones would force accounting professionals to learn new standards that lead to consistency in accounting practices. Impact on Stocks Stock markets would see a decrease in the costs that complement entry to external exchanges and all the markets sticking to the similar standards that would auxiliary permit markets to contend universally for global prospects of investment.

The convergence would bring rehabilitated clarity in business organization of accounting, comparability between diverse countries on financial reportage, this would lead to improved capital flow and global reserves which consequently reduce interest rates and lead to further economic progress. In conclusion, in order to have global comparable financial statements, the proposition to have harmony in accounting principles argues that distinct set of accounting standards could be used to ensure similar transactions would be equally treated by universal corporations around the world. Venuti, & K, E. A comparison of the value-relevance of US versus non-US GAAP accounting measures using form 20-F reconciliations. Journal of Accounting Research, 230-264. Ampofo, A. A. Landsman, W. R. Lang, M. Williams, C. Are IFRS-based and US GAAP-based accounting amounts comparable? Journal of Accounting and Economics, 54(1), 68-93.

W.  Wiley GAAP 2004: Interpretation and Application of Generally Accepted Accounting Principles. John Wiley & Sons. Henry, E, Lin, S. Yang, Y. IAS/IFRS standards for SMEs and the impact on the accounting system.  International Journal of academic research, 2(4). Zeff, S. A. How the US accounting profession got where it is today: Part I.