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15 Jan 2018

The old GAAP hierarchy is said to be a rules-based approach, andthe new codification is meant to move our standards to aprinciples-based approach. what is the interpretation of thedistinction between these two philosophies?

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16 Jan 2018
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International Standards have been described as“principles-based” while U.S. GAAP is typically described as“rules-based.” Take a look at the IFRS’ interpretation of“significant influence” and FASB’s definition-compare and contrastthe two-how similar are they- where are thedifferences?

Feel free to browse through the FASB Codification formore details on this.

The United States requires financial statements to be prepared under GAAP but most every other country utilizes the international Financial Reporting Standards (IFRS). For many years the United States has been working toward converging GAAP rules with IFRS so that companies could have one set of rules that would apply to every county when issuing their financial statements. There are still some major differences between GAAP and IFRS. Intangible assets is one of the differences, provide an explanation of the difference in detail including what financial statements would be affected and how it would affect financial statements if we were to change our rule to match IFRS. Citations please.

The SEC has made formal statements announcing its intention ofadopting IFRS (International Financial Reporting Standards) withinthe near future. Currently, a final decision on this matter isslated for 2011, and the timeline for adoption is for Americancompanies to begin using IFRS by 2014, with some companiespotentially adopting as early as 2010.

The approach FASB is taking to prepare for this change is one ofconvergence. In other words, FASB and the IASB (InternationalAccounting Standards Board) are currently updating US GAAP and IFRSto reflect and complement each other. Recent changes to US GAAPunder this convergence approach have been made to areas such asnon-monetary asset exchanges, recognition of expenses associatedwith stock options, and consolidations. More such changes arecurrent being discussed, and are slated for future adoption.

Although convergence is generally seen as a good thing in the US,many accountants in other countries are unhappy with the level ofresources the IASB is devoting to IFRS/US GAAP convergence. Thesegroups are of the opinion that these resources would be betterspent improving and refining current IFRS standards, for thebenefit of countries who have already adopted IFRS. While suchgrumblings in and of themselves are unlikely to prevent US adoptionof IFRS, this is an important reminder that as Americanaccountants, we are joining a global community, and we need tounderstand that these new IFRS standards apply to all countries,and not simply our own.

I have provided several resource links for your convenience. Youmay use additional resources to conduct your research to answer thefollowing questions:

In your opinion, what are the benefits of switching to IFRS?

What are the possible negatives?

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