Accounting for Global Entities and the Effect of the Convergence of U.S. Generally Accepted Accounting Principles to International Financial Reporting Standards

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The primary subject matter of this case concerns strategic decisions that global entities, their executives, and accountants face in light of the almost certain convergence of U.S. Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS). Secondary, the effect of convergence to IFRS on the financial statements of U.S. based global entities, on financial statement users, and the accounting profession is explored. This case has a difficulty level of three to four and can be taught in about 45 minutes. Approximately two hours of outside preparation is necessary to fully address the issues and concepts. This case can be utilized in Intermediate Accounting as part of the coverage of pending changes in U.S. financial accounting and reporting, in an International Accounting course, or in a graduate accounting course focusing more extensively on underlying conceptual issues and the research components of this case. The case has analytical, critical thinking, conceptual, and research components. Utilizing this case can enhance students' oral and written communication skills.


In December 2007, the Securities and Exchange Commission (SEC) issued a rule entitled, "Acceptance From Foreign Private Issuers of Financial Statements Prepared in Accordance With International Financial Reporting Standards Without Reconciliation to U.S. GAAP" (SEC, 2007). This new rule eliminates the typically costly reconciliation of financial statements prepared using International Financial Reporting Standards (IFRS) to U.S. GAAP that previously was required of non-U.S. companies reporting to the SEC. This rule is likely to significantly affect foreign entities, U.S. multinational entities, financial statement users, and the accounting profession.

The SEC's decision is part of a broader movement in the U.S. toward the acceptance of IFRS and is supported by the Financial Accounting Standards Board (FASB). The SEC also is considering allowing U.S. companies to choose between U.S. GAAP and IFRS when reporting to the SEC and may require that all U.S. public companies utilize IFRS by the year 2016 (SEC, 2008).

While no final decisions have been reached, it is virtually certain that the U.S. will be moving away from the traditional U.S. GAAP and toward a convergence with IFRS, which already are required or permitted in more than 100 nations. U.S. and global entities, the accounting profession, accounting majors, and financial statement users must prepare for this change. Educators play a key role in this process.

The primary focus of this case concerns the U.S. convergence to IFRS and explores the effects of IFRS on global entities' financial statements, financial statement users, and the strategic decisions accounting professionals and entities may face.

This case can be taught at the same time that expected changes in U.S. financial reporting are discussed in Intermediate Accounting or in a more advanced accounting course focusing primarily on underlying concepts and the case's research components. The case has critical thinking, analytical, conceptual, communication, and research components.

* This is an illustrative case. Any similarities with real companies, individuals, and situations are solely coincidental.


For several decades, global organizations, such as the European Union, the International Organization of Securities Commissions (IOSCO), and the International Accounting Standards Committee (IASC), headquartered in London, England, supported international efforts to harmonize financial accounting standards and reporting. For example, the IASCO consistently recommended the "adoption of a set of high-quality accounting standards for cross-border listing" (Doupnik & Perera, 2007, 78). Consistent with the IASCO's goal, during the 1990s the IASC focused on developing a set of international standards that would be accepted for cross-border listing (Doupnik & Perera, 2007) and issued 41 International Accounting Standards (IASs). …


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