How is the Convergence Similar to the Legalization of Marijuana?
In most cases, accounting and marijuana have nothing in common; however, when it comes to blurred lines between legal standards, accounting and marijuana actually share a lot of similarities. Today in the United States of America, twenty-nine State governments and the District of Columbia have laws legalizing marijuana in one form or another (Governing, 2017). Conversely, the Federal government still has laws prohibiting the use of marijuana anywhere in the country. So which laws should citizens follow? The contradictions between Federal and State government standards leave citizens not knowing which laws to follow. Different sets of legislation also mean citizens need to keep up with the ever changing rules of two different legal systems instead of one. In the accounting world, we also follow two different sets of standards. Accountants in America need to keep up with the ever-changing rules and standards of Generally Accepted Accounting Principles (also known as GAAP) and International Financial Reporting Standards (also known as IFRS).
Some countries their own set of financial reporting standards and requirements, in the United States we use GAAP (Pologeorgis, 2012). The international standard for all countries, however, is IFRS. For almost forty years, IFRS has governed financial reporting standards for globalized capital markets around the world (Pacter, 2013). The issue lies in the fact that GAAP and IFRS are not the same; they have different standards for similar situations. GAAP is more rules-based, while IFRS is principles-based (Pologeorgis, 2012). These differences lead to confusion when it comes to how to report financial information. The International Accounting Standards Board (also known as the IASB) works to clarify and alleviate any existing confusion from the lack of accounting standards, between countries around the world and IFRS (Pologeorgis, 2012).
To continue drawing parallels between GAAP & IFRS and State & Federal governments, imagine the GAAP being like the State government and IFRS being like the Federal government. State laws only govern the people living in the specific state, and GAAP financial standards only apply in the United States of America. Each state has a different stance on whether or not marijuana should be legalized, and each country has a different standardized set of accounting principles. Federal laws govern the entire country, and IFRS financial standards apply to most nations doing business at an international level. All states must abide by the Federal law, and all businesses must follow IFRS to work globally, no matter what the business’s national standards state. When thinking about the similarities between GAAP & State governments and IFRS & the Federal government, think small picture vs. big picture; one governs individuals while the other governs the collective whole.
When our Federal and State laws conflict in the United States, we look to the Supreme Court to settle our differences; when our accounting standards need clarification, we need a convergence of standards. Since October 2002, professionals around the world have been working on the convergence between IFRS and GAAP (Pacter, 2013). In the last fifteen years a lot of progress has been made, but there are still places where the two standards conflict (Pacter, 2013). The end goal of the convergence is a single set of global accounting standards, to make international investing more compatible between countries (Bogopolsky, 2015). Once the final convergence is done, anyone who works with IFRS or GAAP would need to relearn how to work with the new standards, this is similar to how Americans would have to relearn new laws after the Supreme Court makes changes or clarifications of the Constitution.
In almost all aspects, accounting principles and marijuana have nothing in common, but some parallels can be drawn between the differences in standards of the two. Marijuana is considered illegal in the United States of America under the Federal law and is legalized under twenty-nine different State laws. Accounting standards are governed by GAAP in the United States, but also governed by IFRS on the global scale. The conflicting laws and standards need to be clarified; we use systems like the Supreme Court and the convergence to clarify which law/standard to follow when conflicts arise. Once the clarifications are in place, the general public would need to re-educate themselves on the new laws/standards. Someday, the Federal government will have to address the fact that Federal law and State laws are conflicting, and eventually we stride to have a single set of global accounting standards. Big changes are coming for both marijuana and accounting. Who knew the two topics has so much in common?
Bogopolsky, Alex. "Does IFRS Have a Future in the US?" IFAC. International Federation of Accountants, 11 Sept. 2015. Web.
Governing. “State Marijuana Laws in 2017 Map.” Governing Magazine: State and Local Government News for America's Leaders, 14 Sept. 2017, www.governing.com/gov-data/state-marijuana-laws-map-medical-recreational.html.
Pacter, Paul. "What Have IASB and FASB Convergence Efforts Achieved?" Journal of Accountancy. Journal of Accountancy, 01 Feb. 2013. Web.
Pologeorgis, Nicolas. "The Impact Of Combining The U.S. GAAP And IFRS." Investopedia. Investopedia, 16 Oct. 2012. Web.