The Phenomenon of Convergence
The phenomenon of convergence emerged in the late 1950s, after World War II, fueled by widespread cross-border investment flows and economic integration. The emphasis was on harmonization, or the elimination of gaps in accounting rules applied to various financial markets around the world. The premise of harmonization was rebranded as the principle of integration in the 1990s. FASB issued the chief strategic strategy in 1991, detailing specific efforts to promote internationalization. In 1993, the FASB collaborated with its Canadian colleagues on a section monitoring program. In 1994, FASB and IASC collaborated in a standard setting. 1995, FASB updated its strategic plan in line with IASC and the US GAAP standards, IASC undertook a fundamental standard plan with the International Organization of Securities Commission (IOSCO). The summary shall, therefore, focus on the purpose and history of the convergent project, its current state and the variances amongst the International Financial Reporting Standards (IFRS) besides the General Accepted Accounting Principles (GAAP).
Purpose and History of the Project
1960s In 1962, in the eighth Worldwide Assembly of Certified public accountant and the American Institute of Certified Public Accountants (AIPCA) discussions were geared towards the accounting and the world economy. Most of the attendees urged for the thoughtful consideration and stepped to ensure that the accounting, auditing and reporting standards are developed on a global basis. The committee in charge of international relations was reactivated with the aim of putting in place a plan for the improvement of cooperation among the accountancy profession. The exchange of ideas and information would result in the agreement on conjoint standards. The year 1964 saw the completion of the review which was published in twenty-five countries. 1966, a study group for the accountants internationally was formed with key participants being the United States, Canada, and the United Kingdom. 1967, the first international accounting textbook was published by the Macmillan Publishers authored by Professor Gerhard G. Muller (Wang, 2014). 1970s & 1980s In 1973 the International Accounting Standard Committee (IASC) was put in place, the forerunner of IASB. The major intent was to come up with basic standards to be used in the preparation and presentation of the audited financial statements and to advocate for their general reception. 1979, FASB constituted the first task force including the other international setters to revise the accounting standard on foreign currency. 1987, IASC undertook an improvement and comparability project with a goal of reducing the number of allowable alternatives in the twenty-five standards already developed. 1988, FASB joined the IASC as a member of Review Group and expressed its backing for the internationalization of the standards (Wang, 2014). 1990s 1991, FASB gave out the chief strategic plan outlining particular efforts in a bid to achieve internationalization. 1993 FASB undertook a joint project with the Canadian counterparts on segment reporting. 1994, FASB and IASC collaborates in standard setting. 1995, FASB updated its strategic plan in line with IASC and the US GAAP standards, IASC undertook a fundamental standard plan with the International Organization of Securities Commission (IOSCO). 1996, the Congress of the US shows its support for international standards that are of a very high quality and SEC accepts the standards set by IASC. 1998, the financial crisis in Asia prompts the need for the international standards. 1999, FASB announces its vision and way forward in international accounting standards formulation (Wang, 2014). 2000- SEC gave a statement about the standards 2001, IASC reforms into ISAB. The European Union made a resolution to use the international standards on financial reporting for listed companies from the year 2005, IASB and FASB agreed to work together in converging IFRS and GAAP. 2003, SEC reaffirms FASB as the private sector setter of standards. 2006, FASB and IASB described their progression toward convergence by signing a Memorandum of Understanding (MoU). SEC makes a proposal for the future elimination of the requirement to reconcile and FASB issues a statement about that. In the same year, FASB and IASB releases converged standards on the combination of businesses. 2008, FASB and IASB, apprised their MoU and SEC issues a statement on the roadmap towards the adoption of the IFRS. 2009, FAF and FASB issues a response to the request for comments by SEC. 2010, SEC supported the convergence while FASB and ISAB released the progress on convergence. 2011, IASB and FASB issued an interim report towards the completion of the convergence program. 2012, SEC issued the final roadmap for the consideration and incorporation of the IFRS. 2013, IFRS Foundation organized the Accounting Standards Advisory Forum (ASAF) (Wang, 2014).
Current Status of the Project
The range of the general convergence project of the IASB and FASB has evolved over the years. For the government grants, impairment and income taxes the joint work on the project have been discontinued. Borrowing costs, discontinued operations, joint arrangements and segment reporting IASB issued IAS 23 and IFRS 5, IFRS 11 and IFRS 8 respectively. The fair value of the financial instruments, research and development and subsequent events related to the FASB. The joint work on financial statement presentation, post-employment benefits, insurance contracts and liabilities and equity have been discontinued. Revenue recognition and financial instruments have been converged on IFRS 15 and IFRS 9. Business combinations, consolidation, and fair value measurement were converged in 2008, 2011, 2011 respectively (PACTER, 2013).
The Difference between IFRS and the US GAAP
The main dissimilarity between the GAAP and IFRS underlies on the analytical methodology; the IFRS is based on principle while GAAP is based on rules (Forgeas, 2008). ASPECT | IFRS | GAAP ---------|----------|---------- Consolidation | Control Model | Risk and reward model Statement of comprehensive income (extraordinary items) | Extraordinary items not separated | Extraordinary items are presented underneath the net income Inventory or stock | LIFO | Select LIFO and FIFO Earning-per-Share Computation | Fixes not average the shareholder's interim period | Computation means the person's interim period incremental shares Development costs | The costs are capitalized if assured benchmarks are met | The outlays are reflected as expenses
References
Forgeas, R. (June 16, 2008). Is IFRS that different from U.S. GAAP? Retrieved June 23, 2017 from http://www.ifrs.com/overview/general/differences.html
PACTER, P. (January 31, 2013). What have IASB and FASB convergence efforts achieved? Journal of Accountancy. Retrieved June 23, 2017 from http://www.journalofaccountancy.com/issues/2013/feb/20126984.html
Wang, C. (2014). Accounting standards harmonization and financial statement comparability: Evidence from transnational information transfer. Journal of Accounting Research, 52(4), 955-992.
