Convergence between GAAP and IFRS - Research Paper Example

In 2008, FASB reorganized the many accounting principles into only 90 topics. In the same year, the Securities and exchange commission granted a roadmap that would eventually change the US use of the GAAP as accounting rules and adopt the most widely used IFRS rules, by the year 2011 (Bradshaw, 2010). The full adoption of the IFRs was projected to be accomplished by 2014. On the other hand, the history of the IFRS can be traced to 1966 when a proposal was issued to establish a study group consisting of various accounting bodies from England, USA, Canada, and Wales, which would study the possibility of establishing accounting standards that could be universally applied to guide the accounting functions of organizations the world over.

In 1967, the Accountants International Study Group, tasked with the responsibility of creating the appetite for change in accounting standards, was created. The body published articles every few months on the need for change until 1973, when Accounting Standards Committee was formulated to develop accounting standards for international use (Ball, 2006). This was followed by the establishment of the Standing Interpretations Committee to resolve the contentious issues that were arising from the standards crafted by the Accounting Standards Committee. . By the year 2003, the International Financial Reporting Standards were first published and adopted.

In 2005, the European Union adopted the standards and later all the companies in the UK were supposed to present their financial statements using these standards for their financial years commencing January 2005 (Bradshaw, 2010). The current status of the GAAP and IFRS depicts some differences in some of the accounting principles. The differences in their statuses are in terms of the impacts of the accounting standards on the financial statements provided by organizations (Wiley, 2007). Consolidation is the first of this impact where IFRS applies control model while the GAAP prefers the risk and rewards model (Bradshaw, 2010).

In the preparation of the statement of income, the IFRS requires that extraordinary items are not segregated while the same are shown below the net income under the GAAP standards. Inventory is another difference currently portrayed by the preparation of the financial statements under the two standards. Under the IFRS, the use of the historical method of managing stock LIFO, where the last item to be bought in the inventory list becomes the first to be sold, is prohibited. Under the GAAP system, however, organizations have a choice between the use of that historical method and the FIFO inventory management system where the first item in the inventory list becomes the first to be sold by a business entity (Ball, 2006).

Under the IFRS system, the earnings-per-share calculations do not call for the averaging of the individual interim period, while under the GAAP the computation takes the averages of the individual interim period incremental shares (Bradshaw, 2010). Finally, under the IFRS