uniform accounting standard produce uniform financial reporting

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Recommended: Similarities and differences between GAAP and IFRS

Accounting standard is a set of guidelines that financial accountants have to follow in preparation and presentation of business incomes, expenses, assets and liabilities. This helps to ensure that the treatments of these items are fair and just, hence making the financial statements a reliable source for users. There are many types of accounting standards being used all over the world. More than 120 countries such as the European Union, Singapore, India, Taiwan, Australia and Canada adopt the International Financial Reporting Standard (IFRS), which is developed by the International Accounting Standard Board (IASB). It is a principle-based approach. On the other hand, United States of America is using the Generally Accepted Accounting Principles (GAAP) developed by Financial Accounting Standard Board (FASB), which is rules-based. Over the last decade, these two boards have been working together towards convergence. (1) Why did they take this approach? Why is it important to practise the same standard across firms and countries? It is said that uniform accounting standard produces uniform financial reporting. Hence, all financial information will be treated and presented in the same manner globally.

The first advantage from this would be enhancing the comparability of high quality statements. For example, company A wishes to see where it stands by comparing with other companies of the same industry in another region. If the company they wish to do so with uses a different accounting standard, the comparison would be inaccurate due to the many distinctions between IFRS and GAAP. One of them can be the costing method of inventory, where Last-in-First-out (LIFO) system is not allowed under IFRS. This difference in the inventory value...

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... it does not depend solely on the standard being used. According to Hail, Leuz and Wysocki (2009), research shows that firms’ reporting incentives and implementation of the standard have an impact on the quality of statements produced. Comparability in reporting is difficult to achieve as long as firms have different incentives.

Works Cited

2) Hail, Leuz and Wysocki (2009). Global Accounting Convergence and the Potential Adoption of IFRS by the United States: An Analysis of Economic and Policy Factors. Page 5.
3) Chris Dumont (2012). International Financial Reporting Standards: What You Need To Know.
4) Grant Houston (2011). The Disadvantages of Harmonizing Accounting Standards.
5) Diaconu (2007). Impact of Globalization on International Accounting Harmonization.
6) Charles, Ding, Xu (2010). Convergence of Accounting Standards and Foreign Direct Investment.

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