International Financial Reporting Standards Assignment

International Financial Reporting Standards - Assignment Example The IASB is responsible for oversight of the IFRS. This agency was formed in 1973 under its former name International Accounting Standards (IAS). The IFRS were created in 2001 (Articlebase, 2008). The first nation to adopt the IFRS framework was the European Union. The countries of Europe adopted IFRS in 2005 (Moya, Perrramon, Constans, 2005). The biggest stock exchange in the European nation is the London Stock Exchange (LSE). All domestic companies must abide by IFRS and U.S. companies that want to list their stocks in the London Stock Exchange must convert their financial statements to IFRS. In U.S. GAAP the financial statements of all companies must follow a specific format, but under IFRS companies can utilize multiple formats for their financial statements. Despite the fact that the IFRS started in Europe, the goal of the IASB is for the IFRS to become the global standard in the accounting community. In a little over a decade the IFRS has penetrated a lot of nations worldwide a lready. There are 153 countries across the world that adopted IFRS which implies that nearly 75% of the world has currently gone through the process of implementing IFRS (Pwc, 2012). The United States is listed as one of the countries that have adopted IFRS, but in reality the U.S is still in a conceptual phase due to the fact the entire financial system of the U.S. is based on U.S. GAAP. It is going to be extremely difficult to convince the entire financial community that convergence into IFRS is in the best interest of the United States. U.S. GAAP is a more complex system that has been used for a longer time. One of the benefits of IFRS is its simplicity. A simpler accounting system can help companies reduce administrative expenses since accounting is a major function that requires a lot of resources. Some people in America have resistance to change because they believe that U.S. GAAP is a superior system that is better equipped to prevent material error and fraudulent activity. T he U.S. GAAP and the IFRS have the same function of recording the financial transactions of companies, but there are lots of differences between the ways financial information are reported in each framework. Under U.S GAAP the valuation of investments is done at the cost of the investment in order to comply with the historical cost principle. The historical cost principle states that all assets in the balance sheet must be recorded at purchase price of the acquisition (Investopedia, 2013). The profits or losses of the investments are only recognized in the accounting books if the investment is sold. In IFRS investments are recorded at fair market value. U.S. GAAP has more information and detail than IFRS. For instance under U.S. GAAP the consolidated financial statements demonstrate financial information regarding the subsidiaries of the company. The IFRS only reports financial activity of the parent company unless the parent company has control over the finances of the subsidiary. Another example of the descriptive nature of U.S GAAP is the policy of reporting detail information about the investments of the firm in the financial statements of the firm. IFRS excludes investment activity from the financial statements. The discrepancies between the two accounting frameworks create inequality in the financial markets because investors are not able to compare the financial statements of U.S. companies vs. foreign firms. In an ideal world everyone would use the