International Accounting Standards Convergence

One day we don’t have to talk about the story of convergence between International Financial Reporting Standards (“IFRS”) and U.S. GAAP (“GAAP”). I believe that they will be fully converged someday in the future. It is generally assumed that, all standard setters would agree on a single, high-quality accounting standard and it can meet everyone’s need. However, there is also a long road to achieve this ultimate goal. Fortunately, the steps of convergence never stop.

There are more than 100 countries are adopting or processing adopting IFRS, it has already become the most popular international accounting standard in the world. Early in 2002, the International Accounting Standards Board (“IASB”) and the Financial Accounting Standards Board (“FASB”) agreed that a common set of high quality, global accounting standards was priority of both Boards. Then, the Securities and Exchange Commission (“SEC”) proposed a Roadmap for the potential use of financial statements prepared in accordance with IFRS as issued by the IASB by U.S. issuers for purposes of their filings with the Commission in 2008 which can be seen as a milestone as the upcoming fully convergence. Although in May 2011, the SEC staff released a paper which describe a slower process of incorporating IFRS into the US financial reporting system, it doesn’t change the fact that the convergence still processing. And the SEC plays a role as a promoter.

There is no doubt that the United States is only “Superpower” owning the most activity capital market in the world. And GAAP is also considered as precise, effective and mature accounting standards. Why SEC would accept IFRS and converge to it anyway?

Of course we can say that GAAP is a good standard, but it does not mean that it is perfect. There are also several disadvantages of GAAP. First, GAAP is not as popular as IFRS. GAAP only is used by the firms in the USA, by comparison, IFRS is adopted

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