Us Financial Reporting

Introduction

Financial reporting is about how an accountant should report to public about the financial events of a business. It is also about how to ‘do’ accounting to some extent. To put it differently, it is about how to move numbers around the financial reports, in accordance with the regulatory framework. (Alexander & Britton, 2004). The U.S. now uses its own set of rules, known as Generally Accepted Accounting Principles (GAAP), which is designed by FASB (Financial Accounting Standards Board). The main purpose of this private, non-profit US organisition is to develop GAAP (Stolowy et al, 2010). Financial reporting is changing and developing to meet the practical needs created by the environment in which it operates. This process of change can be illustrated by both time considerations and place considerations (Alexander et al., 2009). This essay will mainly focus on impacts on financial reporting in US, and what is more, the recent developments in GAAP. As a result, this essay will divide into two parts. The first part is to present features that could affect the US financial reporting, then analysis the reason why these factors could influence the GAAP. The second part is to list recent development of GAAP and its influence.

Influence on US GAAP

Alexander (2009) state that financial reporting can not remain constant for long time, it is improving in accordance with the actual requirements. Currently, most companies world-wide use IFRS (International Financial Reporting Standards). IFRS is a set of accounting standards developed by IASB, which provides general guidance for preparation of financial statements for companies (Holmes et al, 2008). IASB (International Accounting Standard Board) is the independent, standard setting body of the IFRS foundation (Palepu, 2010). Nowadays, there are over 100 countries uses the IFRS all over the world. More and more countries are decided to adopt the IFRS instead of their own financial reporting standards. For example, Japan started adopt IFRS in 2010 (IFRS, 2011), Canada adopted IFRS as Canada’s GAAP at the beginning of 2011(CA, 2010). As the development of economics and business grows, a company always chose to expand trading overseas. If every country uses their own financial reporting standards, for instance, a UK company is planning to list on US stock exchange. the company have to re-prepare their financial reports in accordance with the US GAAP. But if US adopt the IFRS, then this company can list on US stock exchange without re-prepare the financial reports. An increasing numbers of countries have joint the adoption of IFRS, but the U.S. still uses its own set of rules. Consequently, the difference between US GAAP and IFRS will be a drag on US economy, as it is complex transition. In order to fit in with the environment change in which it operates, the US has to change its financial reporting standards.