ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Adapting to The International Financial Reporting Standards

Updated on November 15, 2017

More and more companies around the United States are starting to follow the International Financial Reporting Standards (IFRS). As companies expand, they find themselves dealing with foreign companies and have to adapt so that the accounting standards can remain consistent across the board. The United States is among many countries that have not yet adopted IFRS as it abides by the Generally Accepted Accounting Principles (GAAP) instead. While creating unity between countries’ accounting standards may be beneficial, we must consider the consequences that can occur within our country by switching reporting standards.

The main difference between GAAP and IFRS is the methodology of the two principles. GAAP relies on research and rules within financial reporting, while IFRS is more principled based. GAAP determines individual specified circumstances based on reliability, understanding, comparability, and relevance. While IFRS also uses those characteristics to make decisions; their determinations on circumstances are not specified by the user, but instead through overall principles. These principles have been built up over time and rely on the accountability of the company.

The implementation of IFRS would allow some companies, which already comply with IFRS, to save money, but could potentially hurt small or medium sized companies. Companies using IFRS and GAAP would no longer need to keep two sets of books to record their financials as the reporting methods would be the same. By eliminating the need for two book records, companies would be able to save money by eliminating the excess time used to record the same transactions twice. Not every company uses IFRS though. If the United States were to switch from GAAP to IFRS, smaller companies would be required to switch as well and incur costs they may not be able to afford. Most business schools in the United States focus on GAAP as it is the United States’ main form of financial reporting. This means that many companies would have to pay for their employees to be trained to comply with the changes. This would cause the companies to pay more money than necessary in training.

Switching to IFRS could require the companies to alter their business models to adapt to the different revenue recognition method. While the standards of revenue recognition are more straightforward under IFRS, they have a sizeable impact on both net income and the financial ratios, both of which are used to measure a company’s performance. To adjust to the change companies may need to alter their entire business pricing or payment models to maintain their ratios. This would take time for the company to fully embrace a change in their system and it may cause problems with companies’ contacts that already are used to working with the business model in place. The changes may not be well received.

IFRS allows for more flexibility within financial reporting. As IFRS is more principle based, it allows for companies to create more legible and useful statements by utilizing the principles of fair value accounting. While this flexibility may seem like an advantage, it can quickly lead to manipulation and fraud within a company’s books. IFRS does not require the transparency of full disclosure like GAAP does, which leaves an opening for white collar crime to occur. One example of this type of manipulation is the changing of the inventory method. Companies may change it to make it look as if they are experiencing more turnover than they are and as long as they can come up with a justifiable reason, they are able to do as they please. While companies may need to switch their business models for IFRS, this does not mean that companies should take advantage and change their method to make it seem like more activity is occurring within the business than is actually taking place.

In conclusion, though many companies are using International Financial Reporting Standards, the United States needs to think hard before fully converting from the Generally Accepted Accounting Principles. The change would have a large effect on small and medium businesses, alter business practices, and allows for easier manipulation within the financials. These consequences must be seriously considered before any decisions are made regarding the switch from GAAP to IFRS.

Works Cited

Ball, Ray. “International Financing Reporting Standards (IFRS): Pros and Cons for Investors.” Accounting and Business Research, 2006, pp. 5–27.

Damant, D. (2006). Discussion of 'International Financing Reporting Standards (IFRS): Pros and cons for investors'. Accounting and Business Research, 29-30.

The Globalization of Accounting and Auditing Standards. (2016, December 01). Retrieved October 05, 2017, from https://www.accountingtoday.com/news/the-globalization-of-accounting-and-auditing-standards

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)