International Financial Reporting Term Paper

Pages: 15 (4579 words)  ·  Bibliography Sources: 12  ·  File: .docx  ·  Level: College Senior  ·  Topic: Accounting

International Financial Reporting Standards (IFRS) can be described as a set of global accounting standards that show how specific kinds of transactions and other events should be presented in financial statements. These set of international accounting standards are issued by the International Accounting Standards Board. Notably, the International Financial Reporting Standards act as replacement of International Accounting Standards that were issued between 1973 and 2000. The main objective of IFRS is to provide a basis for easy international comparison of financial reporting. However, the realization of this objective is relatively difficult because every country has its specific set of rules and regulations that govern the process. Consequently, harmonizing international accounting standards throughout the world is a continual process in the global accounting community.

IFRS Conversion in the U.S.A.:

Since January 1, 2011, International Financial Reporting Standards (IFRS) has been the required framework for most of the financial markets across the globe (Stahlin, Harris, Arnold & Kinkela, 2013). The adoption of this framework was preceded by the introduction of several new and transformed accounting standards by the International Accounting Standards Board. These accounting standards were introduced in attempts to enhance guidance for current preparers and also enable huge consistency among standard setters throughout the globe. As a result, the adoption of IFRS accounting guidelines is significant because it offers an alternative accounting method that can be used to improve students' understanding of GAAP.Get full Download Microsoft Word File access
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Term Paper on International Financial Reporting Assignment

Currently, there are more than 12,000 companies in 113 countries that have implemented these standards to a certain extent while other countries are slowly implementing the rules every year. The process of conversion to International Financial Reporting Standards is geared towards enhancing the comparability of financial statements. This will in turn enable investors from across the globe to invest in the best financial instruments anywhere in the world other than their own country or region. As companies in various countries adopt these accounting rules, there have been recent initiatives to educate people about them including professionals, students, and investors (Smith, 2009).

While several countries have already adopted IFRS accounting rules, the United States is in a conversion stage, which implies that the actual time of implementing these rules in America is not yet determined. However, the process of IFRS conversion in the United States has attracted huge concerns and debates from the country's accounting community. These concerns have forced the Securities and Exchange Commission to consider whether to choose conversion or convergence. Due to these concerns, the Securities and Exchange Commission has delayed IFRS conversion in the United States.

Arguments Regarding IFRS Adoption:

As previously mentioned, the adoption of International Financial Reporting Standards in the United States has attracted some concerns regarding the effectiveness and potential impact of these accounting rules. In essence, the debates have resulted in the emergence of divergent arguments between proponents and opponents of the process. One of the major arguments raised by proponents in support of IFRS adoption is globalization. They argue that the world is becoming smaller economically because of globalization, which necessitates the implementation of a universal set of accounting standards.

On the contrary, opponents of the adoption have argued that the enforcement of these standards vary from country to country though the financials may be prepared according to similar IFRS procedures. This implies that the reliability and integrity of financial data will also vary significantly. Notably, these opponents do not necessarily propose the rejection of a global accounting standard that serves as a universal financial language regardless of the validity of their argument. In addition, the removal of differing accounting systems through IFRS adoption may exert pressure on countries where strict financial reporting standards have been lacking (Subler, 2012).

Private and public companies across the United States have used Generally Accepted Accounting Principles (GAAP) for years. These GAAP guidelines were established and introduced by the Financial Accounting Standards Board to guide the process of preparing financial reports and statements. As part of IFRS adoption, the U.S. Securities and Exchange Commission provided a roadmap for American public companies to transit to IFRS in late 2008. However, U.S. SEC did not establish a timeline on the transition though it has issued two progress reports regarding IFRS adoption.

Due to these arguments and concerns, financial executives within the country and around the world wonder if the United States will ever become a complete IFRS convert. Actually, some financial executives and managers have stated that IFRS adoption faces some resistance at the Securities and Exchange Commission (Quinn, n.d.). Some of them do not prefer or recommend IFRS adoption now because of the amount of interpretation and discretion involved in the process. They prefer the adoption of International Financial Reporting Standards after calming of the markets.

Since IFRS adoption has been characterized with several issues, there are concerns on whether the process is dying a slow death in the United States. The answer to this question mainly depends on who is asked, especially because Securities and Exchange Commission is moving slowly in stating its short-term and long-term desires and expectations about IFRS. Furthermore, this process of adoption is also hindered by the seeming inability by SEC to clarify whether it will eventually require IFRS adoption or convergence and within what timeline. The seeming inability by SEC to clarify issues regarding the process is evident in the fact the agency has remained extremely quiet regarding IFRS since its publication of proposed roadmap.

The silence by the Securities and Exchange Commission has cost stakeholders unnecessarily, especially with regards to operational efficiency, credibility, and monetarily. The main question these stakeholders would like answered is when companies will be required to transit from the current GAAP guidelines to International Financial Reporting Standards. Based on the current events, it seems like companies will never be required to do so unless SEC addresses the major questions and concerns regarding IFRS adoption. Notably, IFRS is not considered to be better than GAAP, which hinders the ongoing efforts to bring the two accounting bases together. Therefore, the United States financial sector does not have a compelling reason for adopting IFRS like other countries.


Generally Accepted Accounting Principles have been the main basis for financial reporting in the United States for a long period of time. These principles were introduced by the Financial Accounting Standards Board to guide the process of preparing financial statements and reports. While SEC has proposed a roadmap for transiting to International Financial Reporting Standards, the universal accounting standards are compared to GAAP in terms of their complexities, benefits, and impact. Since IFRS has been a major point of focus by the Securities and Exchange Commission, American companies are becoming more aware of these standards in their ongoing projects. However, these are some major similarities and differences between GAAP and IFRS, especially with regards to their structures.

The similarities and differences contribute to the difference in structure between Generally Accepted Accounting Principles and International Financial Reporting Standards. Some of the major differences in structure between the two accounting standards include & #8230;

Revenue Recognition:

One of the major differences in the structure of IFRS and GAAP is the concept of revenue recognition where IFRS is principles-based while GAAP is principles-based and rules-laden. Notably, the differences in the structure of GAAP and IFRS in relation to revenue recognition are influenced by the manner with which companies operate, particularly their ways of packaging several goods and services in the marketplace. GAAP contains an extensive revenue recognition guidance that includes a huge volume of literature provided by several standard setters in the United States. On the contrary, IFRS has two basic revenue standards that classify revenue transactions within sale of goods, services rendered, construction contracts, and extra use of a business' assets ("IFRS and U.S. GAAP," 2012).

Revenue guidance within GAAP focuses on the realization or earning of revenue since revenue should only be recognized until the occurrence of an exchange transaction. In contrast, revenue recognition guideline for each of the four categories within IFRS incorporates the likelihood that financial benefits linked with the transaction will flow to the business. Furthermore, the criterion is based on the possibility that every revenue transaction and its associated costs can be measured reliably. However, extra revenue recognition guideline applies within every broad category, which implies that the principles are applicable without additional significant rules and/or exceptions. Unlike GAAP, IFRS specifically requires the consideration of the likelihood of financial benefits flowing to the business and the capability to reliably measure the associated costs.

Multiple-element Arrangements:

Multiple deliverables revenue arrangements within GAAP are divided into several accounting units if these deliverables meet the specified criteria as stipulated in the guidance. This is followed by an independent evaluation of revenue recognition of each distinct accounting unit. The U.S. Generally Accepted Accounting Principles incorporates a pecking order for determining a deliverable's selling price. However, the criteria for revenue recognition under IFRS are normally applied separately to every transaction.

In some cases, IFRS requires the division of a transaction into identifiable elements to replicate the substance of the… [END OF PREVIEW] . . . READ MORE

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How to Cite "International Financial Reporting" Term Paper in a Bibliography:

APA Style

International Financial Reporting.  (2013, June 10).  Retrieved March 6, 2021, from

MLA Format

"International Financial Reporting."  10 June 2013.  Web.  6 March 2021. <>.

Chicago Style

"International Financial Reporting."  June 10, 2013.  Accessed March 6, 2021.