International Financial Reporting Standards Essay

According to Deloitte Touche Tohmatsu (2010, para. 3) â€Å"International Financial Reporting Standards (IFRS) are Standards, Interpretations and the Framework adopted by the International Accounting Standards Board (IASB)†. IFRS was established in 2001 and the conversion of the International Accounting Standards (IAS). The IAS had been functional since 1973 until it was converted to IFRS. More standards and components were added to the new IFRS to enhance professionalism in accounting and to accommodate the changing accounting environment. Many countries have accepted the use of IFRS since they are more comprehensive and cover a wide variety of accounting systems. The changes in technologies cause the adjustments in the accounting standards to ensure no loopholes exist in the accounting profession (Deloitte Touche Tohmatsu 2010). Transition Issues Most of the standards used in the IFRS were adopted from International Accounting Standards (IAS). IAS has been operational between 1973 up to 2001. They were developed by the International accounting standards Committee (IASC). The task of setting international accounting standards was shifted to IASB in 2001. IASB continues to make accounting standards called the IFRS. IFRS is composed of the International Financial Reporting Standards (IFRS) – standards issued after 2001, International Accounting Standards (IAS) – standards issued before 2001, Interpretations originated from the International Financial Reporting Interpretations Committee (IFRIC) – issued after 2001, and Standing Interpretations Committee (SIC) – issued before 2001 and Framework for the Preparation and Presentation of Financial Statement (Deloitte Touche Tohmatsu 2010, para. 10). IFRS vs. , U. S.  GAAP The Generally Accepted accounting Practices (U. S. GAAP) were developed to overlook accounting practices in the economy of the U. S. The U. S. GAAP differs slightly from the IFRS and there has been debate to exchange the U. S. GAAP for the IFRS. The IFRS has been acceptable in the global market and has provided opportunities to the U. S. accounting profession since the U. S. GAAP has been limited within the U. S. More than 100 countries in the world are using the IFRS in their accounting systems and there is concern about the adopting of the IFRS in the US. According to Epstein (2008) the implications for the adoption of the IFRS in US will be Training on the differences between IFRS and GAAP, Financial scrutiny of international joint ventures, Merger & acquisition (M&A) international accounting reviews, Sarbanes-Oxley compliance on corporate governance matters, Analysis of international credit policies for multinationals, and Litigation risk due to inappropriate use of IFRS (para. 3). The global investors will have advantages after the adoption of the IFRS in the US accounting systems. This will provide a better environment for cross-border investment as well as integrating capital markets. Global organizations in the US will save the costs of accounting by the use of a single financial reporting standard. The existing system requires compliance with the domestic accounting standards as well as accounting standards of other countries. This is creating more costs to international firms since they must install all accounting systems and employ personnel from diversified accounting backgrounds. The use of the GAAP has limited the growth and expansion of many companies in the U.  S. Multinational companies and their investors will benefit a lot from the adoption of the IFRS (Malriat, 2009). Accounting for revenues under IFRS IFRS adopted some standards used by the IAS but some additional standards were included. This was done to ensure more accountability in the accounting systems and to ensure revenues are safeguarded within the entity. The assumptions of IFRS are; first, accrual basis, this means that transactions are accounted for when they occur but not when cash is received or paid. Secondly, the going concern; the entity is assumed to continue operating in the foreseeable future. Thirdly, stable measuring unit; nominal monetary units are used in accounting to ensure stability of the purchasing power. The qualitative properties of the financial statements are: â€Å"Understandability, Reliability, Comparability, Relevance and True and Fair View/Fair Presentation† (Deloitte Touche Tohmatsu 2010, para. 14). The elements of financial statements are assets, liabilities and equity. IFRS uses discretion in developing conclusion about the accounting systems of an organization. Approximations and evaluations are not accurate and discretion is required when drawing conclusions about the financial status of an organization. Strict enforcement of accounting standards will provide a better system that will monitor the businesses in the international markets (Deloitte Touche Tohmatsu 2010). Conclusion IFRS developed from IAS to include the changing professional requirements and technologies in accounting. The US GAAP has been criticized for its limitation to the US economy and many accountants require the adoption of the IFRS in the accounting systems. The shift from the use of IFRS to the US GAAP will have several implications on the US financial accountants as well as other users of the accounting standards. Even though there are few differences between IFRS and the US GAAP, there are many limitations accompanied with the use of the US GAAP. Adopting the IFRS will open up the market and reduce accounting costs to multilateral firms in the US. Amendments in the IFRS continue to be made to update the standards according to the changes in technology and the global legal systems.