International Us Financial Reporting Convergence Report
Essay title: International Us Financial Reporting Convergence Report
Executive Summary
Convergence between the United States (U.S. GAAP) financial reporting standards and those of the International Financial Reporting Standards (IFRS) has been a long time in the making. With developments in the expansion of the global economy, the need for U.S. GAAP and IFRS standards to become more streamlined and similar has only become more prevalent. Accountants and other financial reporters have known for some time that the financial structure of the world is evolving and expanding with each of its economies moving away from segregation and further towards a global capital market. The need for a single set of accounting standards then, to accommodate and ease this transition, is seen as an overriding necessitation. In an effort to raise solutions to this impending need, the IASB and the FASB have continued to convene in an effort to converge standards in one of the world’s biggest markets, the U.S.
The preparation for convergence began in 2002 and has been gathering momentum and support ever since. In an attempt to quicken the process, the IASB and the FASB, have released �roadmaps’ which seek to accomplish full implementation by 2009.
Most recently, a roundtable discussion was held to arbitrate issues surrounding convergence; most notably how one standard, instead of the incumbent two, will increase the participation rate of foreign companies in U.S. exchanges, as well as a possibilities of broadening of investor potential.
Convergence thou, is not as straightforward and unhindered as it may seem. Many have spoken out against the implications it will have, with certain parties (including some senior staff at highly respected financial regulators) believing it to be a step in the wrong direction.
The potential implications convergence will have upon the U.S. has to be expressed in pure statistical figures to be fully understood. The dread and trepidation of the reconciliation of financial statements will be an unnecessary undertaking if convergence is agreed upon.
To conclude, convergence between U.S. financial reporting standards and the International Financial Reporting Standards (IFRS) has been needed for some time. Hopes are held that convergence may be accelerated, not only in the U.S., but also in other parts of the world, to allow consumers to truly compete in a true global market.
Report
As the capital markets of the world have grown, the search for investment in foreign markets has significantly increased. Investors have come to realise that the accounting standards adopted by their resident countries may not be compatible with countries of potential investment. This can lead to confusion in the presentation of financial statements. This is exemplified by White (2007) who shows that foreign private issuers may file their financial statements in the United States using either the International Financial Reporting Standards (IFRS) or their own national generally accepted accounting principles (GAAP), but are then required to reconcile the financial statements to U.S. GAAP in accordance with rules in the U.S.
In an effort to avoid these circumstances, there have been a pushes to pursue what McCreevy described in his report as global standards and global regulatory co-operation for global markets (2007). This report will focus on the U.S., and convergence between its resident GAAP and the IFRS. Convergence between the two has been a significant time in the making. This report will provide a background into the timeline, aspects and the parties involved in successful convergence. The current climate, events, obstacles and implications of convergence will also be expressed.
The concept of the convergence of accounting standards in the United States began back in 2002. The Norwalk Agreement, taking its namesake from the city of Norwalk, Connecticut, was the location of a meeting between the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) that took place on September 18th, 2002. The FASB is tasked with and responsible for the development of GAAP in the U.S. (U.S. GAAP), while the IASB is the organization in charge of developing and promoting the IFRS. At the meeting between the two, to quote the agreement,
“Each acknowledged their commitment to the development of high-quality, compatible accounting standards that could be used for both domestic and cross-border financial reporting.”
The agreement continued on to say that both the FASB and the IASB agreed that if compatibility was to be achievable, then they needed to do two things. Firstly, both parties agreed to undertake a short-term project aimed at removing the differences between the U.S. GAAP and IFRS. Secondly, both parties agreed to remove the other