IFRS Conversion in the U.S.: Standards, Impacts & GAAP

Introduction to IFRS and Its Global Role

International Financial Reporting Standards (IFRS) can be described as a set of global accounting standards that specify how particular kinds of transactions and other events should be presented in financial statements. These international accounting standards are issued by the International Accounting Standards Board (IASB). Notably, IFRS serves as the replacement for International Accounting Standards that were issued between 1973 and 2000. The main objective of IFRS is to provide a basis for easy international comparison of financial reporting. However, realizing this objective is relatively difficult because every country has its own specific set of rules and regulations that govern the process. Consequently, harmonizing international accounting standards throughout the world remains a continual process within the global accounting community.

Since January 1, 2011, IFRS has been the required framework for most financial markets across the globe (Stahlin, Harris, Arnold & Kinkela, 2013). The adoption of this framework was preceded by the introduction of several new and revised accounting standards by the IASB. These standards were introduced to enhance guidance for current preparers and to promote greater consistency among standard setters throughout the globe. As a result, the adoption of IFRS accounting guidelines is significant because it offers an alternative accounting method that can also improve students' understanding of GAAP.

Currently, more than 12,000 companies in 113 countries have implemented these standards to some extent, while other countries are slowly adopting the rules each year. The conversion to IFRS is geared toward enhancing the comparability of financial statements. This will in turn enable investors from across the globe to invest in the best financial instruments anywhere in the world, not just within their own country or region. As companies in various countries adopt these accounting rules, recent initiatives have sought to educate professionals, students, and investors about them (Smith, 2009).

While several countries have already adopted IFRS, the United States remains in a conversion stage, meaning the actual date of implementation has not yet been determined. The process of IFRS conversion in the United States has attracted significant concerns and debates from the country's accounting community. These concerns have led the Securities and Exchange Commission (SEC) to weigh whether to pursue full conversion or convergence, and as a result, the SEC has delayed IFRS conversion in the United States.

Arguments Regarding IFRS Adoption in the U.S.

The adoption of IFRS in the United States has attracted concerns regarding the effectiveness and potential impact of these accounting rules. The debate has produced divergent arguments between proponents and opponents of the process. One of the major arguments raised by proponents in support of IFRS adoption is globalization. They contend that the world is becoming smaller economically, which necessitates the implementation of a universal set of accounting standards.

Opponents, however, argue that the enforcement of these standards varies from country to country even when financials are prepared according to similar IFRS procedures. This implies that the reliability and integrity of financial data will also vary significantly. Notably, these opponents do not necessarily advocate for rejecting a global accounting standard that serves as a universal financial language. In addition, the removal of differing accounting systems through IFRS adoption may exert pressure on countries where strict financial reporting standards have historically been lacking (Subler, 2012).

Private and public companies across the United States have used Generally Accepted Accounting Principles (GAAP) for years. These guidelines were established by the Financial Accounting Standards Board (FASB) to guide the preparation of financial reports and statements. As part of the IFRS adoption discussion, the U.S. SEC provided a roadmap for American public companies to transition to IFRS in late 2008. However, the SEC did not establish a firm timeline for the transition, though it has issued two progress reports regarding IFRS adoption.

Due to these arguments and concerns, financial executives both within the country and around the world question whether the United States will ever become a complete IFRS convert. Some financial executives and managers have stated that IFRS adoption faces resistance at the SEC (Quinn, n.d.). Some do not recommend IFRS adoption at this time because of the amount of interpretation and discretion involved in the process, preferring to wait until market conditions stabilize.

Since IFRS adoption has been characterized by several unresolved issues, there are concerns as to whether the process is dying a slow death in the United States. The answer depends largely on who is asked, especially because the SEC has been slow to state its short-term and long-term expectations about IFRS. The process is further hindered by the SEC's seeming inability to clarify whether it will eventually require conversion or convergence, and within what timeline. This uncertainty is evidenced by the agency's near silence regarding IFRS since the publication of its proposed roadmap.

That silence has cost stakeholders unnecessarily in terms of operational efficiency, credibility, and financial resources. The main question stakeholders want answered is when companies will be required to transition from GAAP to IFRS. Based on current events, it seems unlikely that companies will be compelled to do so unless the SEC addresses the major questions and concerns surrounding IFRS adoption. Notably, IFRS is not considered superior to GAAP, which further hinders the ongoing efforts to bring the two accounting frameworks together. Therefore, the United States financial sector lacks a compelling reason to adopt IFRS in the same way other countries have.