Magazine article The CPA Journal

Let's Learn to Walk. ... before Running to International Standards

Magazine article The CPA Journal

Let's Learn to Walk. ... before Running to International Standards

Article excerpt

Federal officials have cited global competition and economic globalization as the impetus in the move toward International Financial Reporting Standards (IFRS). By adopting international standards, however, we may cede effective control to bodies outside U.S. borders, diminishing investors' and voters' ability to put pressure on regulators to do what the law requires.

In an increasingly global marketplace, there is pressure on regulators to standardize financial reporting. When investors and market analysts attempt to compare the financial results of companies following U.S. generally accepted accounting principles (GAAP) with others following IFRS, the task is onerous.

The Financial Accounting Standards Board (FASB) has been working with the International Accounting Standards Board (IASB) on a convergence project that will result in new proposed U.S. accounting principles, comparable with international accounting principles. With the European Union, Australia, New Zealand, and Israel having already adopted IFRS and Canada and Japan planning to adopt the standards by 2011, many investors anticipate that it won't take long for the United States to jump on board.

Does implementation of international standards make sense now? No matter how worthwhile the notion of international convergence is, the vast majority of CPA professionals have been trained in GAAP. Most CPAs have little or no experience applying IFRS, thus making implementation of those standards in the United States very difficult.

Much needs to happen before the implementation of IFRS occurs. Colleges and universities will need to change curricula to include courses in international accounting. Professional organizations and educational groups will need to incorporate IP7RS into training materials. The Uniform CPA Examination will need to be overhauled to reflect international accounting standards.

Under IFRS's "principles-based" approach, accountants are allowed to apply professional judgment in assessing the substance of a transaction rather than compelled to use the checklist mentality of our "rules-based" GAAP. As a result, although international accounting standards may be superior in some ways to U.S. GAAP, they are weaker in other areas. For example, foreign accounting standards permit companies to provide fewer details about mortgage-backed securities, derivatives, and other financial instruments that have been implicated in the current housing and credit crises. …

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