Convergence of IFRS Briginshaw, J.

Convergence of IFRS

Briginshaw, J. (2008). What will the international financial reporting standards (IFRS) mean to businesses and investors? Graziadio Business Review, Vol. 11, Issue 4. Pepperdine University. Retrieved January 14, 2013 from http://gbr.pepperdine.edu/2010/08/what-will-the-international-financial-reporting-standards-ifrs-mean-to-businesses-and-investors/

This article describes the IFRS standards and how they were developed by the IASC and its successor organization, the IASB. The author notes that the SCE has been fairly aggressive in pursuing a convergence agenda. IFRS will require investors to adjust interpretation of earnings numbers. IFRS is characterized as more "principles based" than U.S. GAAP, which is seen as largely "rule based." One major distinction between IFRS and GAAP is under IFRS, LIFO is not allowed and U.S. companies will be forced to discontinue LIFO. While the result will be increased net income, it will ultimately be a disadvantage to stockholders because companies will be charged more corporate taxes. This tax penalty could be in the hundreds of millions of dollars for some large industrial firms. IFRS gives management more discretion in the area of asset valuation as a whole discretion that is also likely to increase company income. In the area of research and development costs and the related area of homegrown intangible assets valuation, IFRS is more generous than GAAP. IFRS is less conservative and allows an increase in the risk of overstating income in a company's financial statements. IFRS also allows more flexibility and since bonus and stock option schemes usually give managers incentives to increase income this flexibility likely will be used to increase income. Investors will have to adjust and discount IFRS figures, one additional dollar of IFRS profit indicates slightly lesser incremental economic health and, if the underlying assumptions of accounting are accepted, slightly lesser ability to pay down debt and pay dividends in the future than one dollar of income calculated under GAAP.

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