Global convergence toward International Financial Reporting Standards and GAAP

¶ … accounting standards in use throughout the world in the next 5 years?

The need for a universal set of accounting standards was recognized years ago, the origins of which can traced back to early twentieth century where practitioners in the U.S. And elsewhere failed to implement uniform accounting principles. The call for uniformity went stronger when the U.S. stock market crashed in 1929. It was firmly believed by then that there should be uniform accounting standards which would limit the use of professional judgments made by the management and hence will enhance the comparability of the financial statements (Previts and Merino, 1998, pp. 161 et seq.). Subsequently, when the world's leading financial countries faced cases like Enron and others, the need for consistent and comparable financial reporting became paramount. The need become more evident with dramatic increase of cross-border transactions, multinational corporations, foreign direct investments comparable as well as increase in the number of foreign securities listings on the stock exchanges. Until recently the world economy was divided between the two world's most prevailing accounting regimes i.e. The IFRS and the U.S. GAAP. However, to improve the credibility as well as the comparability of financial reports harmonizing the standards is inevitable. This is why moving the world towards a planned reformation of these standards in order to eliminate the inconsistencies between the perspective regimes. The International Financial Reporting Standards are laid out by the International Accounting Standard Board, an independent body set up in the year 2001. Over time the IFRS has gained vast acceptance for statutory and tax reporting purposes around the world. Such as the European Union (EU) now requires all companies that are listed on the stock exchanges to follow IFRS standards and organize their financial statements in conformity to the International Financial Reporting Standards (IFRS). World's leading economies like the UK, Germany, and Japan are also netting under the frame work of IFRS. This makes it almost necessary for the U.S. To also converge to these standards if the United States intends to work with other nations in developing one common accounting and reporting language. Hence in one way or another convergence to a single set of accounting standards is a necessary response to economic globalization. This is why the U.S. Securities and Exchange commission has already taken steps towards the adoption of the IFRS standards. The Security and exchange commission has now allowed the foreign companies the latitude of submitting their financial statements consistent with the IFRS framework without having to convert them first to the U.S. Generally Accepted Accounting Principles (GAAP). To further accelerate the process of convergence that U.S. security and exchange commission released a statement in February 2010, in which it was maintained that the SEC encourages the convergence of the U.S. Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS) so that the differences and the inconsistence between the two set of standards can be minimized and abolished. Hence IFRS is being rapidly adopted by nations and thus ensuring acceleration towards a uniform set of accounting practices and standards globally.