INTERNATIONAL FINANCIAL REPORTING

Recent Development in International Financial Reporting: Globalisation of Accounting Standards

Recent Development in International Financial Reporting: Globalisation of Accounting Standards

Introduction

The theory of accountancy in business has standards that may see a drastic change in the United States of America. Years ago countries developed their own styles of accounting standards and no two books looked the same. There were rule-based, principle-based, business-based, tax-oriented etcetera. The globalization of our world has caused this to be a problem. The intertwining of our economy gives rise to dilemmas when trying to compare company and keep records for companies that operate in different countries. This year, the Securities and Exchange Committee is looking to make a decision on international rules regarding accounting standards. The United States has expressed support of accounting harmonization rather than accounting convergence(Clarke, 2012, pp 151-156).

Accounting harmonization is the goal to adjust the consistencies among the different methods, procedures, or systems of other countries in order to make them more compatible with each other uniformly. Accounting convergence, on the other hand, has a distinctly different definition; it is the goal to come to an agreement on accounting standards to become a unified whole. Only a few years ago, however, the United States strongly favored convergence over harmonization. Regardless of the nitpicking of words and what the United States supports and what it does not; the task at hand, which is to create an infrastructure for global standards in accounting, is a very challenging one (Johnson, 2012, pp 306-308).

Discussion

Two predominately used standards came to place by the early 90's which are Generally Accepted Accounting Principles known as GAAP and International Financial Reporting Standards known as IFRS. GAAP is the current accounting standard used in American businesses. It is a code for how corporations and CPA firms prepare and present their business income and expense, assets and liabilities on their financial statements. The consistency of financial reporting is important so that financial analysts, banks, shareholders, and the SEC (Securities and Exchange Commission) can compare business entities with each other. Today there are 150 pronouncements as to how to account for different types of transactions.

Globalization of businesses has caused a new international standard of accountancy to push out GAAP in America and favor IFRS. To this date it would be difficult for a shareholder to compare a British company to an American company because one company may seem more valuable than the other when in fact it is not. IFRS is not used in the European Union, India, Hong Kong, Australia, Malaysia, Pakistan, Russia, South Africa, Singapore and Turkey. It is becoming more and more expected that companies with high levels of international activities adopt IFRS. Many argue that IFRS represents and captures the economics transactions better than United States GAAP.

GAAP and IFRS are very close to each other while at the same time there are major differences in the two standards. First, timing of revenue recognition can be different in certain cases. It is possible to recognize revenue with price not fixed yet ...