Importance of IFRS
Adopting of IFRS
IFRS, International Financial Reporting Standards, are a set of accounting guidelines and standards just like the GAAP (American Institute of Certified Public Accountants, 2012). This is the first thing that Marie Claveau needs to understand, since the firms will be expecting people who can help in the adoption of the new international accounting standards. The standards were established by the international accounting standards board to become the globally accepted standards for use in the preparation of financial statements, in public companies. It is supposed to be a set of standards that can be used globally for the public companies, as well as private companies willing to use them as their accounting standards. Currently, it has been adopted in as many as 120 countries all over the world, with an aim of having an accounting standard that is uniform and easy for global accounting purposes (American Institute of Certified Public Accountants, 2012). Unlike each country having its own accounting standards, IFRS seeks to standardize accounting standards across the whole globe for easy comparison of accounts especially now when countries can no longer be independently sufficient economically (Securities of Exchange Commission, 2011). Thus, having an accounting standard accepted globally makes it easy for large companies and corporations to have an easy time and efficient accounting policies within all its global subsidiaries. Considering that, these firms will be engaged in the adoption of the new accounting standards, the firms will expect to have a staff that is well aware of the situation and ready to help in the adoption. Thus, Claveau needs to have a good knowledge about the IFRS and adoption activities.
The main aim of the IFRS by the Securities Exchange Commission, SEC, is coming up with a working plan to identify relevant areas for the smooth transition without causing any disruptions to the accounting operations. The working plan from the SEC, lays down a strategy that public firms should use in order to transition smoothly from their current accounting standards to the newly established international standards. The SEC seeks to do this through six areas of focus upon which research are conducted to find out the benefits of using the IFRS (Securities of Exchange Commission, 2011). The first area of focus by the SEC is the assessment of whether the new international accounting standards are sufficient for reporting within the United States domestic market. This will provide the green light of the usability of the international standards. Additionally, this goes ahead to identify the benefits that are available to the companies and firms upon adoption of the IFRS. The adoption of the IFRS will have several benefits to the four large accounting firms. Having the whole globe use the same accounting standards raises a better chance for comparison of firms across the whole globe.
One of the advantages or benefits is the ability to compare financial statements or accounting processes across global competitors (American Institute of Certified Public Accountants. 2012). With an identical reporting standard across the whole globe, competitors are able to compare and benchmark easily since financial statements are reported on the same basis. For instance, if they use the same accounting standards to report assets, companies could always make an easy comparison based on the same reporting standards. Additionally, multinational and international companies with subsidiaries across many countries have a chance to use one reporting standard instead of having to conform to different accounting standards in each country (Securities of Exchange Commission, 2011). Therefore, it provides such firms with a chance of using one accounting standards that make it easy for management and monitoring of operations within the whole company. Previously, companies have had to conform to different accounting standards within different countries, which posed huge problems in terms of accounting for the whole organization. Additionally, companies could raise capital from abroad since they can assess each other’s financial standings with ease due to use of the same standards of reporting. This allows companies issuing the capital to have a better understanding of the company’s financial status in a way they understand, than when reporting systems are different. These are some of the general advantages of adopting the IFRS.
With the assessment by the SEC to find out the usability of the IFRS, some of the differences noted between the two accounting standards, IFRS and GAAP are examined. One of the areas noted as having differences is the inventory section where IFRS has fewer guidelines than the GAAP. The SEC seeks to find out whether the guidelines of the IFRS are usable in US with close reference to the GAAP, which the current is accounting standard used. With the SEC conducting the analysis, the big four accounting firms have an advantage since they could always use the results of the analysis just as any other firm will (Securities of Exchange Commission, 2011).
In order to understand the IFRS completely, one needs to understand the differences it has with the current accounting standards, GAAP. The main difference is that IFRS is designed to account for transaction of every industry. Therefore, it has to have broadly designed principles in order to accommodate for as many industries as possible. The IFRS has little or limited specific principles and guidelines. It does not focus on a particular industry. Rather, it has broad principles that can be used by any industry. This is in contrast to the GAAP that has distinct guidelines for different industries. The GAAP lays down guidelines that are to be followed by different industries. Although IFRS lacks the distinct principles, it provides general principles that can be used to identify, measure or disclosure of accounting figures. It can provide this as a distinct guideline for certain transactions, such as presenting financial statements.
Mostly, the differences between the two standards exist in the guidelines of the GAAP that are found within each industry or transaction. The IFRS may not provide such details in relation to different industries. Rather, it provides a general guideline that acts with all the industries. This does not mean that the IFRS is not detailed enough to provide principles that companies can use. The differences have not shown any significant difference or effect between the two. However, it is realized that the details within the GAAP were not made at once. Rather, they emerged through various needs such as the need to give interpretations, or recognition of some measure. Additionally, they develop due to the realization of areas that were found to be lacking enough details to tackle cases that arise. Thus, most of the guidelines within the GAAP have developed from preceding need or situations (Securities of Exchange Commission, 2011).
Such knowledge is beneficial to the four firms in helping them understand some of the differences they might have to experience with the adoption of the IFRS. Some of the impact would have to deal with generalized accounting standards that might not serve all the industries as prior standards did. However, it is worth noting that the principles could be developed when need arises, just as with the GAAP. For instance, one of the guidelines that were developed within the GAAP after a case of fraud was the Sarbanes Oxley Principles. Thus, if the guidelines are found to be lacking in some areas, industries could develop principles to deal with the issues.
With such knowledge, Claveau would go through her interview with current information concerning one of the major operations the firm shall be dealing with in case the SEC approved the adoption process. With such knowledge, she has a chance of proving that she can add value to the firm in the most crucial area at the time. Additionally, proving that she knows what the firm stands to gain is an added advantage. The main benefit for the big four accounting firm is that adoption of IFRS internationally would allow competitors to have an easy time comparing and benchmarking, which is important for understanding the position of the firm. Additionally, this allows firms to acquire capital from abroad since the firms can assess each other. This also favors firms that are seeking to merge or buy others. Therefore, companies have a chance of benefiting from the adoption of the IFRS, including the accounting company that Claveau has an interview.