Ifrs vs. Gaap

605 Words3 Pages
ACC 420 International Case Juliana Goes Eboli Technology has made it possible for corporations to create a global market rather than a local/regional market. This economic globalization brought many challenges to the accounting profession; since each country used to have their own accounting rules, it became a challenge for companies to report their financial position in a way that could be understood and compared by investors. It was based on this notion that the International Financial Reporting Standard was created. Around 120 nations, including the European Union, Brazil, Canada and Russia (Benjami, 2012), have already adopted the IFRS. China and Japan are expected to adopt IFRS by the end of next year. The U.S.A. is one of the few economic powers in the world that has not adopted IFRS; it continues to use its own accounting standards: GAAP. Since 1988, FASB has been working with IASB to establish a common set of accounting standards. Although GAAP and IFRS are now more similar in many ways, the convergence is still a work in process. GAAP is more rules based, while IFRS is a principle based with limited guidance. However, globalization calls for this single standard. Investors feel the need to compare apples to apples, and this pressure will help the convergence of GAAP and IFRS. Even with the global pressure, American companies still feel very reluctant to make the change. Even though the economy is globalized, the world is still constituted of many individual countries, where every single country has its unique set of laws and a different economic environment. Therefore changing the world’s accounting standards to principle based might be misleading because not all nations will interpret the principle the same way. Since IFRS has no set rules, it will depend on each accountant’s interpretation of the principle. This could severely affect the

More about Ifrs vs. Gaap

Open Document