IFRS and GAAP Convergence - Term Paper Example

International Accounting Standard Board issues the IFRS. Over 100 countries across the world have completely adopted IFRS. European Union, New Zealand, Australia and Russia are the prominent examples (Garg, 2010). GAAP GAAP exhibits fair, complete and clear financial operation of the enterprise. It comprises of authoritative pronouncement issued by several accounting bodies. GAAP is a set of rules, concepts, conversions and procedures to denote accepted accounting practices at a specified time.

The corporate accounts and the financial statements are presented in accordance with the GAAP. It considers the conceptual framework of financial statements, accounting principles, Income Tax Act and most importantly requirements of the regulatory bodies of a country (Sangani, 2010). Convergence In this case, the term ‘convergence’ implies the harmonization of the accounting standards. . Companies across the world have already acknowledged the importance of the adoption of global accounting standards or the convergence.

Most of the countries used local GAAP and recently adopted IFRS. Meanwhile there are few countries that are still reported to be under both the accounting standards. It is really time consuming and costly way to report financial records as conversion take much time and moreover it creates uncertainties among the users of the financial reports. Therefore, it can be suggested that countries should go for convergence. The US is in the planning phase of the convergence of the IFRS and the US GAAP, as according to the work plan of the SEC it will take another four to five years for complete convergence.

Impact of the Convergence Impact of the convergence differs from companies to companies. It mainly depends upon the nature of the business. It is evident that the number of users of financial reporting is quite higher for the public companies in comparison to the private companies. Hence, impact of convergence on public companies will be higher as well. Several elements exist in the financial statements of the public companies and therefore, a few expertises are required to interpret the data.

At the same time, level of difficulty is also high due to the responsibilities of the finance manager. At the planning phase of the convergence or during the convergence, companies need to report under both the accounting standards and it increases the complications for both the finance managers and the users of the financial statements. This issue is mostly faced by the multinational companies. They need to prepare financial