Should the US fully adopt IFRS? Why or Why Not?

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Shouldthe US fully adopt IFRS? Why or Why Not?

The term international financialreporting standards refer to the modern set of procurement that theIASB separate from the previous release by the internationalaccounting standards (IASs).The globalization effects have triggeredmost public firms to change the financial approaches, especially inthe accounting sector. Most public firms are opting to adopt newfinancial accounting strategies for auditing reason, which may leadto transparency in the company’s transactions. “In America,globalization has increased both opportunities for the businesstransaction and the influx of foreign public firms among publicfirms”1.Due to technological growth, public firms can receive informationabout the company’s financial positions through the internet.Moreover, the internet portrays the financial positions of theAmerican public firms to various public firms around the world. Forthat reason, the urge of investing in the U.S public firms amongpublic firms has tremendously increased. “Most states are proposingthe adoption of the international financial report standards invarious American public firms”2.Moreover, most nations are thinking of implementing the policy. TheU.S, being the largest economy in the world, has indicated itsconcern about the implementation of the policy. “If the U.S adoptsthe policy, more countries will be willing to do the same”3.For instance, the decision of the European Union to adopt the policyattracted most nations towards implementing IFRS. For that reason,the paper will give arguments approving and disapproving the adoptionof IFRS by the American public firms. Furthermore, the paperillustrates the writer’s stand on the introduction of IFRS amongthe American public firms.

Argumentsfor the US adoption of the IFRS

Most states have declared theirconfidence on the IFRS. They consider IFRS even if the publicperceive U.S.GAAP as their golden standard.“The public isconsidering IFRS because it is international recognized and has somebenefit”4.Moreover, for a long, the American public has confidence on U.SGAAPbecause they believe it is high standard. Moreover, the adoption willmean that the country willfollow the international recognizedaccounts standard rather than the U.SGAAP. Additionally, the adoptionof the IFRS is encouraging since it will enable public firms toachieve a single set of global financial reporting standards on thegoals. The international standards board and the financialaccounting standards board have severally endorsed the idea sincethey perceive the idea an appropriate way of increasing the number ofpublic firms in the nation. “The IFRS is the chief way mostorganizations will cross borders and increase their raising ambitionsas required by the IFRS”5.“Therefore, this move will not only increase the number of publicfirms, but will also attract public firms into the American publicfirms. For that reason, the nation will evidence rapidindustrialization together with a swift decrease in the number ofunemployed people in the American society through being employed inthe newly established firms”6.The most crucial reason for the adoption of IFRS is greatercomparability given that firms can accurately compare their financialreports without any flaw. IFRS is crucial when comparing thefinancial statements of organizations based in different nationsaround the globe. Hence, most nations may use the approach as abenchmark platform. Most firms can enhance their knowledge on thedifferent mechanisms of preparing financial statement through IFRS.The comparability enables the company to compare its financialachievements with that of other leading financial multinationals inthe world. The increase in comparability has enabled public firms todetermine the appropriate sector to invest. Furthermore, it hasreduced loss making among public firms since they understand thecorrect industry to invest. The firm will benefit from lowinformation processing costs.

IFRS is crucial because it enhancesthe standardization of accounting and financial reports. Thestandardization of the accounting and financial report is beneficialbecause it improves the comparability of the firm in major financialmarkets. Therefore, this removes the trade barriers among nations.“The elimination of trade barriers will enable the Americancorporations to trade freely without any restrictions in the worldmarkets”7.Equally, the American multinationals will benefit through IFRS sincethey will gain from accessing the foreign market information, whichmay enable them to understand the appropriate overseas business totransact. “Further, it will enable the American organizations tocompare their financial statements with their foreign subsidiariesorganizations”8.The comparison is beneficial for it makes firms make theconsolidation of their financial statements easier. Additionally, thecomparison enables an organization to evaluate the performance in theforeign market. Hence, an organization may have an opportunity ofevaluating the foreign market and understand the appropriate ventureto invest. IFRS is instrumental since it enables public firms toevaluate the foreign market before investing.

Argumentsagainst the adoption of IFRS in the U.S

Although IFRS is beneficial, it hassome limitations, which may bar the public American firms fromadopting it. For instance, IFRS may lead to lower information qualityamong public firms. The American firms’ financial reporting will begreatly hampered due to the increment in the cost of capital. Therefore, the move will put most investing away because of the fearof making losses in their ventures. “As a result, most economistsand business critics rate U.S.GAAP over IFRS because it gives firms agolden standard of understanding the market”9. “Additionally, with convergence, America will lose its autonomyover the setting of the accounting rules”10.The FASB is required to set accounts standards in America with theaid of the Congress, the SEC, and court precedents. “With theacceptance of IFRS, the power to make crucial accounting legislaturewill be transferred from the FASB to the IASB, and, therefore, otherorganizations will lose their autonomy of making crucial accountingcontributions”11. “The American public firms will lose power to influence theaccounting legislature because the IASB considers the interests ofpublic firms while the FASB considers only the American publicfirms”12.This selective consideration is ineffective since it may hampercompatibility. “The problem of switching costs may incur to mostAmerican firms if the IFRS policy is implemented”13.“If the IFRS rule is implemented in the American firms, most firmswill be prone to manipulation of their financial statements under theapproach at the expense of the shareholders”14.“Moreover, the shift from U.SGAAP to IFRS may likely cause publicfirms a lot of money connected to the switching costs, training andeducation, and value of market capitalization”15. The organization may spend most capital in switching to IFRS thus,reducing the capital of most public firms. “Additionally, thetransition to IFRS may lead to the decrease in income and the drop inthe share capital among public firms”16.

Positiontaken

The U.S should avoid fullyimplementing the IFRS to support the public trading companies, butshould continue with the convergence. IFRS is less detailed and notspecific for individual industrial needs. “IFRS is less detailedthan USGAAP, and, therefore it should not be adopted”17. The U.S has always been in favor of a rule-based system forregulation. Therefore, they may reject the policy because no priorofficial accounting standards are present. The policy cannot beimplemented since there is no infrastructure for an integratedfinancial system. The U.S believes it has the strongest accountingstandards in the world. “Thus, they are reluctant in leaving theirsuperior standards for IFRS”18.Moreover, the U.S accounting standard always favors industrialdevelopment in the nation. The movewas implemented to boost the development of large industries inAmerica and assist in killing the smaller ones. The small industrieswill be endangered by the creation of a monopoly by large industries. The monopoly among large industries may be created through thesetting of the standards. “Therefore, the set rules mainly considerthe large public firms”19.“I strongly reject the move because it will cause public firms alot of money to transition IFRS&quot. Thus, this move is perilousgiven that it will reduce the investment capital among public firmsand reduce the number of public firms in the American economy.Moreover, the public firms incur expensive costs in transitioningwhile positive repercussions of the change are realized after a longtime. The SEC should reconsider their move of adopting the IFRSbecause it may lead to the doubting of the U.S accounting standards.

Conclusion

Firms always manage what ismeasured and a slight change in the measurement makes changes on themanagement styles and micro economic factors. Accounting standardscannot be implemented without proper implementation of theinfrastructure meant to facilitate the standards. Therefore, theaccounting standards and the infrastructure are codetermined.Adopting IFRS per se is unlikely to produce comparable data. The IASBis unlikely to be able to satisfy all IFRS using nations andpriorities will determine continued participation.

Bibliography

Hester, Lam. Why does the U.S continue to use GAAP and will itever converge to IFRS. Claremont Mckenna college. P5-71.

Hail, Luzi., Leuz, Christian., and Wysocki. Global accountingconvergence and the potential adopting of IFRS by the U.S (part I):political factors and future scenarios for U.S. Accounting standards.Accounting Horizons. 24(4). pp 355-394.

Hail, Luzi., Leuz, Christian., and Wysocki. Global accountingconvergence and the potential adopting of IFRS by the U.S (part II):political factors and future scenarios for U.S. Accounting standards.Accounting Horizons. 24(4). pp567-588.

Leuz, Christian. Different approaches to corporate reportingregulation: How jurisdictions Differ and Why. ECGI working paperseries in law. Pp2-49.

Leuz, Christian. Different approaches to corporate reportingregulation: How jurisdictions Differ and Why. European CorporateGovernance institute. Pp2-49.

1 Hester, Lam. Why does the U.S continue to use GAAP and will it ever converge to IFRS. Claremont Mckenna college. P5-71.

2 Hester, Lam. Why does the U.S continue to use GAAP and will it ever converge to IFRS. Claremont Mckenna college. P5-71.

3 Hail, Luzi., Leuz, Christian., and Wysocki. Global accounting convergence and the potential adopting of IFRS by the U.S (part II): political factors and future scenarios for U.S. Accounting standards. Accounting Horizons. 24(4). pp567-588.

4 Leuz, Christian. Different approaches to corporate reporting regulation: How jurisdictions Differ and Why. ECGI working paper series in law. Pp2-49.

5 Leuz, Christian. Different approaches to corporate reporting regulation: How jurisdictions Differ and Why. ECGI working paper series in law. Pp2-49.

6 Hail, Luzi., Leuz, Christian., and Wysocki. Global accounting convergence and the potential adopting of IFRS by the U.S (part II): political factors and future scenarios for U.S. Accounting standards. Accounting Horizons. 24(4). pp567-588.

7 Leuz, Christian. Different approaches to corporate reporting regulation: How jurisdictions Differ and Why. European Corporate Governance institute. Pp2-49.

8 Leuz, Christian. Different approaches to corporate reporting regulation: How jurisdictions Differ and Why. European Corporate Governance institute. Pp2-49.

9 Hail, Luzi., Leuz, Christian., and Wysocki. Global accounting convergence and the potential adopting of IFRS by the U.S (part II): political factors and future scenarios for U.S. Accounting standards. Accounting Horizons. 24(4). pp567-588.

10 Hail, Luzi., Leuz, Christian., and Wysocki. Global accounting convergence and the potential adopting of IFRS by the U.S (part II): political factors and future scenarios for U.S. Accounting standards. Accounting Horizons. 24(4). pp567-588.

11 Hail, Luzi., Leuz, Christian., and Wysocki. Global accounting convergence and the potential adopting of IFRS by the U.S (part II): political factors and future scenarios for U.S. Accounting standards. Accounting Horizons. 24(4). pp567-588.

12 Hail, Luzi., Leuz, Christian., and Wysocki. Global accounting convergence and the potential adopting of IFRS by the U.S (part II): political factors and future scenarios for U.S. Accounting standards. Accounting Horizons. 24(4). pp567-588.

13 Hester, Lam. Why does the U.S continue to use GAAP and will it ever converge to IFRS. Claremont Mckenna college. P5-71.

14 Hail, Luzi., Leuz, Christian., and Wysocki. Global accounting convergence and the potential adopting of IFRS by the U.S (part II): political factors and future scenarios for U.S. Accounting standards. Accounting Horizons. 24(4). pp567-588.

15 Hail, Luzi., Leuz, Christian., and Wysocki. Global accounting convergence and the potential adopting of IFRS by the U.S (part II): political factors and future scenarios for U.S. Accounting standards. Accounting Horizons. 24(4). pp567-588.

16 Hail, Luzi., Leuz, Christian., and Wysocki. Global accounting convergence and the potential adopting of IFRS by the U.S (part II): political factors and future scenarios for U.S. Accounting standards. Accounting Horizons. 24(4). pp567-588.

17 Hester, Lam. Why does the U.S continue to use GAAP and will it ever converge to IFRS. Claremont Mckenna college. P5-71.

18 Hester, Lam. Why does the U.S continue to use GAAP and will it ever converge to IFRS. Claremont Mckenna college. P5-71.

19 Hail, Luzi., Leuz, Christian., and Wysocki. Global accounting convergence and the potential adopting of IFRS by the U.S (part I): political factors and future scenarios for U.S. Accounting standards. Accounting Horizons. 24(4). pp 355-394.