International Financial Reporting Standards and the US, Research Paper Example

The International Financial Reporting Standards (IFRS) is designed to standardize the global business interactions so that international exchange and understanding of business records is achieved. With the increased pressure of globalization there is also a corollary increased pressure to achieve a standard that transcends the traditional borders of one country or geographical region. The initial intention of the IFRS was to ensure a standard was established within the European Union but once this concept was starting to increase in popularity there was a push to extend this standard globally. The standardized accounting focus was to ensure interpretation, understanding, use, definition and measurements were assessed and understood across businesses that were globally disparate. With the increase in scope moving from a primary focus of the European Union to a global application there are inherent risks with implementation, adoption and enforcement of the standards.

The standards focus on the objectivity of the financial statements to include cost accounting, capital maintenance in nominal monetary units, constant purchasing power, qualitative characteristics of financial statements, elements of those financial statements, understanding of those elements, measurements and metrics, capital and capital maintenance and basic requirements of financial reporting outlined by the IFRS. The IFRS is establishing a baseline understanding by outlining the areas of understanding and defining those for clarity. The next area of understanding is the basic requirements that each area must adhere. In order to fully grasp the current status of the IFRS it is important to understand what is expected by each area adhering to the IFRS. There are specific requirements that outline multiple areas of financial reporting and accounting standards. The complete set of financial statements included a statement of financial position such as a balance sheet, a statement of comprehensive income or income statement, a statement of changes in equity, a statement of cash flows and notes including a summary of significant accounting policies (AICPA, 5). These basic standards do not deviate from the core financial and accounting reporting requirements that are utilized in business and the key increased functionality outlined by the IFRS includes the standardization of reporting, definition, clarification and enforcement of standards.

Currently, the status of the IFRS and its adoption within the United States is under current scrutiny by the Securities Exchange Commission. The review of the IFRS shows that there are currently gaps between what is needed for implementation and the current business processes. The other side of these requirements shows that the GAAP is continually implementing and updating the processes, procedures and standards for accounting and lessening the gap between the standard and the business processes. The understanding is that the deviation between GAAP’s guidance is less that that deviation that IFRS will provide. This disparity is pushing the acceptance by the United States further away. This indecision on acceptance is leaving the United States isolated as other globally are accepting and implementing the IFRS standards. Mandating IFRS in the current United States model does not seem like an obvious move. The SEC’s focus is disclosure of information and enforcement of regulations based upon the US’s GAAP standards. This does not mean that the IFRS is not impacting the accounting standards. While the adherence to GAAP is paramount for US based companies there are areas that are increasing the need to incorporate and adhere to the IFRS standards. As stated before, globalization is impacting every part of those of businesses that are partaking in expanded global opportunities. IFRS is guiding the requirements for long term projects such as acquisitions, tax planning, IT infrastructure, business processes and practices as well as other strategic business plans. For those companies in the United States that are expanding their businesses outside of the domestic market or taking on new ventures globally are driving the introduction of the IFRS standards into the reporting and adherence demands outlined by the IFRS.

With the increased pressure globally to adhere to the new standards there will be a push to implement the IFRS requirements, the United States is moving toward adoption of IFRS. Currently there are companies that are pushing to move their standards from US GAAP to the IFRS. The Ford Motor Company found it more cost effective to consolidate and integrate the IFRS into their corporate standards in a conversion effort as opposed to managing and implementing the conversion at 60 disparate and separated entities across multiple international jurisdictions (IFRS USA, 1). The transition from the US GAAP does not seem to be a hard a fact transition directly from the current standards imposed by US GAAP but a slow migratory enforcement of IFRS based upon the individual needs of the companies that are impacted by global business practices. This would provide a framework for the implementation of the IFRS by the SEC and allow the control of the transition to be held and owned by the individual companies. Eventually there will be a full transition that will include a primary focus on the international standards but that move will be based upon the desire for simplification by the company as opposed to mandated governmental engagement to set standards. The eventual enforcement and ensured accountability will be held by the government but the implementation of the new standards will be held by the companies striving to ease business transactions and increase their global presence.

Works Cited

AICPA. International financial reporting standards (IFRS). An AICPA backgrounder. 2011. Web. www.ifrs.com/pdf/ifrsudate_v8.pdf.

IFRS USA. Will IFRS be mandated under new SEC chair white? IFRS USA. 2013. Web. http://ifrsusa.wordpress.com/