I need an explanation for this Accounting question to help me study.
By 2010, foreign companies will be able to file on U.S. Stock Exchanges using IFRS standards.
What are some of the challenges facing the accounting profession, and how do you see them affecting you in the future?
Just do response each posted # 1 to 3 down below only
Foreign companies filing on the U.S. stock Exchange using IFRS standards could be very challenging. The IFRS is used by many countries, however the United States utilizes the GAAP. If you’ve been to different countries you may have noticed the difference in culture compared to the United States. The IFRS is based on principles and the GAAP is based on rules.
The first challenge that concerns me is, will the IFRS principles that do not abide by the GAAP rules suffer the same consequences? What will happen when standards collide? Transitioning from one business culture to another is hard. Actions taken due to personal beliefs or ethical reasons, are not always what is best for the company.
The second challenge is inventory. Companies in the United States are allowed to use the last in first out (LIFO) method which is unacceptable in other countries. As a result of this, reports may be inaccurate.
The last challenge would be accounting for shares. How will this effect shareholders? What currency will be used and does it impact shareholders from different countries. They would want to know if there currency has increased or decreased in value because of this change.
I’ve traded in the stock market before. Trading in the U.S. market and Forex is very different. Investors would have many questions. As an individual pursuing a degree in accounting, I could see this becoming confusing and causing frustration. It is always best to give direct guidance with no room for guessing. Enforcing one standard makes it easier for the accountant to review financial documents.
After reading the required text about countries adopting IFRS, I understand why many jurisdictions are already using these standards. As stated in the text many countries do business across their borders, no longer by way of just imports and exports. World markets are becoming increasingly intertwined (Keiso, Weygandt, Warfield, 2018). American based companies like Microsoft, Apple, and Facebook have investors that are located in other countries and they want to make sure that their money is respected and holds the same value that they would get if they lived here in the United States.
I foresee quite a few challenges to the accounting profession if the United States adopted these standards. First, companies in other countries might value their assets differently. Some might value based on purchase price, fair market vale or purchase price minus depreciation. Second, companies In different countries might put a monetary value on things that another company might not, like tangible and intangible items. Third, companies might have subsidiaries and they may add all revenue together or keep it separate. These are just a few challenges that come to mind immediately, I can assure you there are more.
if we change our reporting to adopt the IFRS it would mean unlearning our GAAP, and getting on board with a completely new set of standards. Accountants might make mistakes in reporting because of the change in reporting standards. As far as who does the comparison to US GAAP and IFRS On the exchange, it should be a new committee formed, that way the burden is not cast onto the user but the new oversight committee that will be formed making it a fair process and they can publish quarterly reviews. That can be viewed by all online.
I learned a lot this week about IFRS through the textbook reading assignments. My opinion would be that the differences in IFRS and GAAP are monumental enough that the non-accountant may not realize that “foreign companies’ financial statements may be prepared using a different set of accounting standards than companies use in the United States.”1 In my opinion, the added burden for users to interpret financial statements will cause confusion with some companies using IFRS and others GAAP. The need for the educated accountant to interpret these differences is becoming increasingly important.
By not staying active in the workforce or continuing education for the past 14 years, the following is an example of information I learned this week and the non-accountant may not have knowledge of either: “Recently, IFRS has increasingly called for use of fair value measurements in the financial statements….Fair value information may be more useful than historical cost for certain types of assets and liabilities and in certain industries.”2 Many of the IFRS principles are opinion based and that leaves a lot of room for interpretation. As accountants, I believe one of the challenges we face is that we need to be careful to interpret the information with facts and not our opinions of the interpretations the company followed.
For me personally, I feel that the ever-changing differences in IFRS and GAAP will encourage me to continually enroll in online courses and conferences to stay current and knowledgeable.
1 International Investing. (2016, December 07). Retrieved July 31, 2020, from https://www.sec.gov/reportspubs/investor-publications/investorpubsininvesthtm.html
2 Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2018). Chapter 2: Basic Principles in Accounting. In Intermediate accounting IFRS edition (pp. 2-16). Hoboken, NJ: Wiley.