Johnson, Sarah. (2008, April 4).

¶ … Johnson, Sarah. (2008, April 4). "Goodbye GAAP." CIO Magazine. Retrieved September 3, 2009 at http://www.cfo.com/article.cfm/10919122/c Generally Accepted Accounting Principles (GAAP) has long been the 'gold standard' of accounting guidelines and ethics within the United States. It is sometimes easy to forget that not all nations abide by GAAP. The European Union, for example, has abandoned local standards and mandates that all companies comply with International Financial Reporting Standards (IFRS) instead.

This is not simply to confirm the interconnected and seamless economy of the EU, but as a way of facilitating globalization as a whole for European firms. The new era of interconnected economies means that there must be more uniform standards regarding accounting principles. More and more accountants are now advocating that the U.S. And all other major developed nations should also adopt IFRS as a way of facilitating transparency and ease of reading and reporting financial statements.

Both auditing firms and multinational companies have been pressuring the U.S. Securities and Exchange Commission (SEC) to create a homogenous, global standard for all U.S. publically-traded companies. Since 2007, the SEC has allowed foreign companies to submit statements that observe IFRS without reconciling the differences between IFRS and GAAP reporting. That has effectively prioritized IFRS, according to the 2008 article "Goodbye GAAP" by Sarah Johnson of CFO Magazine and will toll the death knell of GAAP altogether within the next five years.

Theoretically, the efforts of the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have been working to merge U.S. accounting rules with international financial reporting standards (IFRS). But most believe "it's not a question of if but when" GAAP is eliminated, through this process (Johnson 2008, p.1). And some large U.S. multinationals are not sorry at the prospect, complaining: "It's really not cost efficient to maintain two sets of books on different standards," of GAAP and IRFS, one for the U.S.

And one for everywhere else (Johnson 2008, p. 1). But other companies have their reservations, given they prefer GAAP's specificity and rigor, in contrast to IFRS' vaguer guidelines. According to most objective assessments, GAAP is far more detailed, which was why some accountants hoped that those regulators responsible for creating a convergence between the two systems "would take the best aspects of GAAP and IFRS to create the highest-quality standards possible -- no matter how long it took" (Johnson 2008, p.3). Yet the U.S.

GAAP system is seen as too detailed by Europeans who prefer their more vague and flexible guidelines. "We do have the best reporting system, but the rest of the world will not accept it...It's too detailed for them" said one U.S. accountant (Johnson 2008, p.3). And European critics of the U.S. system note that it has hardly made America scandal-free in terms of its accounting reportage.

These preferences aside, American multinationals like PepsiCo and Procter & Gamble, are examining how a possible shift away from GAAP would affect their revenue recognition, taxation, and hedge accounting in the near and far future. In many cases, the overall, self-interested impression is positive as IFRS tend to make a company's returns look higher. But for smaller U.S. companies without an outreach abroad, the advantages of a switch to IFRS are less clear, as they have not been keeping two books all along like multinationals.

More time-consuming (an estimated 18-24 months) headaches and paperwork as companies switch to IFRS seem likely -- and a tremendous financial drain is almost certain upon all organization's revenues during the period of transition. "Procter & Gamble hasn't pinned down an exact number, but expects a conversion project would cost tens of millions of dollars" (Johnson 2008, p. 2).

European companies who have already switched from their local systems to IFRS estimated that they spent an average 0.05% of their revenue in their first year of switching from their local standards to IFRS (Johnson 2008, p. 2). Additionally, not all U.S. firms will show higher profits if there is a total transition to IFRS. International standards bar the use of LIFO (last in, first out) accounting, which confers sizable tax benefits to some companies in many industries.

However, like it or not, a shift away from GAAP seems to be the trend of the future: even smaller European companies which chafed at the retreat from their homegrown GAAP were forced to comply eventually. "The EU's.