Accounting 493 Case Study Memorandum

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Accounting 493 Case Study Memorandum To: Professor Siyi Li From: Date: September 4, 2013 Subject: Analysis of the transition from GAAP to IFRS in the U.S. This memo’s purpose is to determine the costs and benefits of the transition from Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS) in the United States. This memo targets the costs and benefits of the transition in three disciplines of accounting: Investors, U.S. public companies, and Auditors. The transition could benefit investors since they would have less trouble comparing companies based in different countries. “Adopting IFRS would influence the growth of banks' stocks as it would lead to reduction in the barriers to trade and flow of capital due to greater transparency from more disclosures (Chima, 2012).” This suggests that banks converting to IFRS will be able to expand the pool of potential investors since the investors will be better able to understand the financial statements of banks outside their home countries, and also, this will lead to easier comparability of U.S. banks with foreign banks. Larger companies and big accounting firms support the transitioning from U.S. GAAP to IFRS in the near future. They assert global unity would save companies money by consolidating bookkeeping, and make it easier to raise capital around the world since the conversion makes the U.S. capital markets more attractive to foreign companies. However, smaller companies complain that the change will be a costly setback. Furthermore, smaller companies also are less likely to have operations outside the U.S., or to have aspirations to expand or raise money globally (Rapoport, 2011). IFRS is predominantly more principles based, whereas U.S. GAAP is considered more rules-based. Hence, auditors possibly will spend more time reviewing, understanding and

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