Introduction
In the world of business, accounting is the spoken language that is used in different parts of the world. As such, there are two different spoken languages in financial accounting. The two sets of language dictate the financial reporting standards that are used. The major economies of the world use either the International Financial Reporting Standards (IFRS) or the United States Generally Accepted Principles (US GAAP) (Erchinger & Melcher, 2007). The two standards are regulated by two bodies that are (1) the Federal Accounting Standards Board (FASB) responsible for the GAAP and the International Accounting Standards Board (IASB) for the IFRS (Callaghan & Treacy, 2007). For a very long time, there have been discussions over the convergence of the American Accounting Standards with the ones used by the rest of the International community. The debate has even got the word convergence caught in the tangle. One side of the debate defines convergence as the use of the sane rules and principles when reporting financials while the other debates that convergence means that the outcome should be the same for both IFRS and GAAP. Nevertheless, the convergence or merging of the two standards does promise advantages for both sides. Use of similar standards would mean easier comparability of financial reports of different businesses across international borders. At the same time, some challenges emanate from the convergence. The American CPA’s would have to diverge from their life long accounting culture that is superior to the IFRS. The cost of convergence regarding international alignment and re-training of both International and American CPA’s is proving to be a costly affair. In my opinion, although convergence would be ideal for the accounting industry, chances of its occurrence are slim.
Timeline for IFRS and US GAAP Convergence
The completion date for the convergence is blurred, and the convergence itself has been pushed further and further for quite some time now due to problems that have continually hampered the alliance. While the date of completion is uncertain, the beginning can be traced back to 1950 when Harry MacDonald proposed the need for international standards of accounting (Henry, Lin, & Yang, 2009). Officially, instigated in September 2014 in Norwalk the convergence has been a path has been a process that the FASB and the IASB pledged to walk. With respect to the venue, the promise was known as the Norwalk Agreement. In February 2006, the two bodies were again issued a Memorandum of Understanding to re-affirm the commitment towards harmonization of the accounting standards. The Memorandum of Understanding was a step further because it aligned goals, deadlines (Van der Meulen, Gaeremynck, & Willekens, 2007). The process was again updated in September 2008 and the goals delayed as 2011 passed on. Until date, the process is yet to be finalized.
Conclusion
In light of all the above, the convergence of the two standards has certainly been the dream for International Accountants but more of a burden for American CPAs. The debate is whether the American accountants would willingly let go off their norms and jump on board the international bandwagon despite the shortcomings that may come their way. In addition, both parties would have to contend with high monetary and non-monetary expenses when the convergence is implemented. Also, the United States will have to suffer political degradation so that an accounting level field is re-adjusted. However, businesses the United States would welcome the move as globalization is already forcing them to report in both the IFRS and GAAP standards. The SEC has received comments concerning the convergence and more than 85 percent propose a single standard of reporting while 65 percent favor full convergence with the IFRS. In this respect, there is dire the need to bring the two standards close if not merge them completely. However, for the process to be completed, the gaping holes that have been in existence and the emerging ones have to be filed.
References
Callaghan, S., & Treacy, M. (2007). Towards Convergence: IFRS to US GAAP Differences. Accountancy Ireland, 39(6), 10–14.
Erchinger, H., & Melcher, W. (2007). Convergence between US GAAP and IFRS: Acceptance of IFRS by the US Securities and Exchange Commission (SEC). Accounting in Europe, 4(2), 123–139. http://doi.org/10.1080/17449480701727908
Henry, E., Lin, S., & Yang, Y. W. (2009). The European-U.S. “GAAP Gap”: IFRS to U.S. GAAP form 20-F reconciliations. Accounting Horizons, 23(2), 121–150. http://doi.org/10.2308/acch.2009.23.2.121
Van der Meulen, S., Gaeremynck, A., & Willekens, M. (2007). Attribute differences between U.S. GAAP and IFRS earnings: An exploratory study. International Journal of Accounting, 42(2), 123–142. http://doi.org/10.1016/j.intacc.2007.04.001
