Table of Contents
Introduction
This research argues that there is need for the US to invest in the process of effective conversion from GAAP to IFRS due to the advantages involved. In addition, GAAP will be rendered worthless in a globalized economy.
- Background: Since 2002, the International Financial Reporting Standards (IFRS) has increasingly become an important financial framework for many financial markets throughout the world (Ernest & Young, 2012).
- Research problem: There is little empirical evidence to support the notion that GAAP will survive as an isolated framework when other world markets switch to the new standard.
- Objectives/aims: To develop an in-depth analysis of a future situation in which the US will retain its GAAP while the rest of the world adopts IFRS.
- The research will examine the inherent advantages and disadvantage of each standard.
- To make a comparison between the two platforms to determine whether GAAP will continue to exists and be effective as an isolated set of standards used in a single nation.
- Research question: Will the Conversion from GAAP to IFRS offer a Global Platform for Providing, Accessing and Managing Consistent Financial Information?
Main Body
What are the advantages and of using IFRS compared to GAAP?
- Advantages of using IFRS
- Empirical studies have shown that conversion to the new system has more advantages to all the involved parties than the disadvantages.
- IFRS allows organizations to provide financial information with a high degree of consistency and quality in their reporting (IFRS, 2012).
- To market controllers, governments, investors and scholars, such information will provide an easy way of comparing different companies, industries and economies across the world.
- IFRS platform has a high potential to offer corporate and governments a method of achieving transparency and trustworthiness in the financial statements from the corporate world.
- Disadvantages of using IFRS
- Cost: The implementation of IFRS is costly, which means that small companies will find it difficult to adopt and apply.
- Time: Full implementation of IFRS will take time
- Advantages of using GAAP
- GAAP is easy to adopt and apply
- It is cheap
- It is flexible
- Disadvantages of GAAP
- Due to flexibility, each company makes its statements in a manner of its choice. Therefore, it is difficult to compare companies across industries
- It puts more responsibility on individual companies, making it possible to make mistakes in reporting
- Comparison between GAAP and IFRS
- GAAP will be obsolete within the ext few decades
- IFRS makes it possible to compare companies across industries, but GAAP does not.
- IFRS is an international standard while GAAP is mainly used in America
- IFRS makes it easy to compare companies across various nations, but this is difficult with GAAP
- GAAP is highly flexible and easy to use, but IFRS is flexible
- GAAP and IFRS are incompatible
- GAAP is an old model that cannot future demands for globalised world of finance
- American financial market may find herself isolated
- Fraud
- Flexibility makes it possible for companies using GAAP to cheat or make false statements in their reports
- Lack of flexibility makes it difficult for companies using IFRSA to make false statements in their reports
Conclusion
- Conversion from GAAP to IFRS is a critical initiative in the modern world
- An in-depth analysis of a wide area of research is necessary
- It is necessary to consider a number of areas such as advantages and disadvantages of each method, the possible scenario if GAAP is retained and the long-term impacts of each method.
Recommendation
Logically, a switch is needed because America is the largest economy in the modern world and the dollar is the largest and official currency in the international monetary system (KPMG, 2012).
References
Ernest & Young. (2012). US GAAP versus IFRS: The basics. Web.
IFRS. (2012). A Comprehensive Case Study: US GAAP Conversion to IFRS. Web.
KPMG. (2012). IFRS compared to GAAP: An overview. Web.