In recent years, there has been an effort to develop a common set of accounting

Question

In recent years, there has been an effort to develop a common set of accounting standards for nations and firms doing business around the world. For the Final Project, you are to write a paper discussing how the effort for a global set of accounting standards has increased the motivation, or need, to establish a global set of ethical standards.

Your paper should include a discussion on the history of the AICPA and the IFAC and a thorough examination of corporate social responsibility frameworks (ISO 26000, AA1000, SA8000), and Global Reporting Initiative (GRI) guidelines. You should address how the United States and the international community are developing a common set of ethical standards and discuss some of the challenges faced by the two governing bodies. Make a recommendation on at least five fundamental guidelines that you believe should be included in a global set of ethical standards.

The paper is to be 7-10 pages (of content) and prepared in accordance with APA guidelines. There should also be a title page, a 1-2 paragraph abstract, and a reference page showing a significant variety of current, relevant sources that are used and cited in the paper.

Explanation / Answer

Convergence of accounting standards toward a common set of high-quality accounting principles is in the public's best interest and would provide a more uniform language for financial reporting. Crowe supports the Financial Accounting Standards Board's and International Accounting Standards Board's joint efforts to improve GAAP and achieve convergence. The rapid pace of change and proliferation of complex standards may create challenges for some stakeholders, including some in the financial statement preparer community. Adequate time to react to changes and new standards, and an intensive effort to inform all stakeholders of these changes, will need to be provided, especially with a view toward global implementation. Local variations in application of common concepts that reflect economic and environmental differences may also be expected.

I personally believe that achieving a single set of high-quality global accounting standards is a very important goal. However, I also believe that we are a fair distance away from achieving that objective. Some of the momentum around IFRS has downplayed a few real challenges associated with uniform adoption of IFRS. Unfortunately, many countries have adopted IFRS with exceptions -- not fully adopting the standard IFRS model. This trend illustrates the much more active involvement of European governments in accounting standard-setting, compared to in the U.S., making it a troublesome aspect of global IFRS adoption today. I also believe that many have underestimated the degree to which the "concepts-based" IFRS standards will migrate toward the "rules-based" structure that exists in GAAP today. In fact, the SEC issued comment letters that speak to uncertainties of this transition. We have "rules-based" standards in the U.S. today largely because of our financial reporting environment, and a change to IFRS will not necessarily change that dynamic.

The concept of a single set of global accounting standards, considering our global economy and the prevalence of cross-border transactions, makes great sense. However, the burden and cost of implementation during the current economy is a large hurdle for some companies. In the long term, I believe a single set of global accounting standards will be very positive.

The concept is good. But there are a couple real-world issues to resolve. The first is that many countries that have already adopted, or are expected to soon adopt, International Financial Reporting Standards have "country modifications" -- if this is prevalent, we do not really have common standards. A second issue is that standards must be relevant and useable -- currently, there is a legitimate question as to whether one set of standards can meet all needs of public companies, private companies, etc. and that must be resolved.

The proposed convergence between U.S. GAAP and IFRS is one of the most critical and controversial issues to affect accounting in the United States.

More than 100 countries currently use IFRS, a number that is set to rise to around 150 countries over the next five years. As multinational businesses continue to grow and expand, a thorough knowledge of IFRS is now essential for internationally active, growing businesses.

Convergence efforts have been in place for nearly six years. After the initial SEC "roadmap" was issued by then-SEC Chairman Christopher Cox, the administration changed and Mary Schapiro stepped in as chairwoman. Shortly thereafter, the global economic and credit crisis hit, consuming the SEC's time and focus. In addition, as U.S. FASB and the IASB continue to work towards convergence, some plead, "Let's just let this process work," which causes the progression to slow even more.

But the movement has been gaining steam with a new ruling from the SEC, recent actions on the part of the AICPA and growing support from companies that do business abroad.

There seems to be worldwide consensus surrounding the need for one global set of high-quality accounting standards and that IFRS is currently best positioned to fulfill that need. However, there is much to be gained from U.S. GAAP and, as such, the convergence of U.S. GAAP and IFRS may very well best serve the needs of the global community.

For companies that do business overseas, or those with global aspirations, the use of converged IFRS represents an opportunity to speak the same financial language as their global counterparts. It will represent a substantial opportunity to seamlessly use and provide financial information around the world. For acquisition of capital, it makes it easier for everyone involved without having to use two sets of languages.

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