An Analysis of IFRS Adoption Challenges within US Corporate Reporting

This report delves into the challenges of adopting International Financial Reporting Standards (IFRS) in the United States, contrasting them with Generally Accepted Accounting Principles (GAAP). It highlights the reluctance of US businesses, particularly public organizations, to adopt IFRS due to fact...Read More

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CORPORATE REPORTING
INTRODUCTION
The International Financial Reporting Standards (IFRS) are the standards meant to guide.
Monitor and control business operations that relate to finances and accounting. These standards
are provided by the IFRS Foundation and the International Accounting Standards Board (IASB).
The function of the policies and laws of the IFRS is to help business organizations manage their
financial accounts effectively (Diana-Andreea, 2014). Additionally they also help businesses
understand these records easily. Therefore, they are used by business accountants when
comparing information and to determine whether the information is reliable, relevant or valid
(Trăistaru, 2015). These standards are currently being used by a large number of organizations
nowadays. The IFRS adoption is becoming a common operation for many businesses recently.
Over the recent number of years, IFRS adoption in the US has become a challenge and therefore
many businesses have given up the adoption and instead most of them are using the GAAP
standards provided by the FASB. The IFRS has not been used especially by public business
organizations. The adoption is caused by a number of problems that exists between the
IASB/FASB and the IFRS. These problems relate to the implementation of additional of
different rules and policies to the IFRS standards (Hillman et al, 2017). In addition to that,
research has shown that it is difficult and risky for business organization in the US to adopt the
IFRS standards (Lourenço et al, 2015). There are immense implications and problems that can
affect business operations and productivity.The following are some of the reasons why the IFRS
adoption is a challenge for the US business organizations.
DISCUSSION
Unreliable US Business Environment
The business environment for the US business organizations regularly fond of disputes. During
such disputes, most businesses opt to report the matter to the law which involves the court in
solving the dispute. This is the case especially in the accounting or financial sector of businesses.
If the IFRS standards are used in the US, the chances of the accountants or financial reporters
being sued and blamed in case of a mistake are very high. In US the accountant is liable to any
mistake that may happen when carrying out their professional duty. For this reason, the
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businesses are reluctant when it comes to the adoption of IFRS standards because the IFRS
policies do not address the specifics of its use (Kaya and Pillhofer, 2013). For instance, it fails to
address any specific liability on professional requirements when using its standards.
Furthermore, the business employees and managers have no desire to deem their employees
liable to a mistake that was unintentional or one that was beyond their effort to prevent.
Problems with IFRS
The standards of IFRS are different from those of FASB. The FASB operations and guidelines
are provided on a regular basis while those of IFRS are almost never available over a long period
of time. The FASB has proved to be more reliable and convenient for many organizations in the
US because it avails its updated and improved standards more often than IFRS (Chan et al,
2013). This means that, the FASB (guiding GAAP) update their policies and standards more
often that the IASB that guides IFRS. In addition to that, the IFRS fails to give detailed
information to its users which makes it less reliable, relevant or valid. This means that even when
the business organizations adopt the IFRS, the chances of it being outdated are very high.
Therefore, with the increase in technology and economic growth in the US, all business
organizations have the desire to use current and updated resources when conducting their
operations hence leaving out IFRS.
Political Interference
In every business organization, there are political differences between the investors, employees,
managers, stakeholders among others. However, different these parties may be, their main aim is
to keep a productive and profitable business. The GAAP standards have the ability to do that
while the IFRS does not. Instead, if the IFRS is adopted by the US businesses, it will certainly
fail to protect the foreign investors and stakeholders (Joos and Leung, 2012). The IFRS also does
not offer the opportunity for consistent use and guidance to the organizations simply because its
upgrade and improvements are irregular and few. Due to the political interference in the
organizations, a good number of them opt to keep the GAAP standards and throw away the IFRS
standards.
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Other problems with the IFRS adoption are: it is costly, unreliable for business operations,
unsuitable for many businesses operating in the US to name a few. This means that for the IFRS
to be valid and usable in the US, there are many mandatory changes to be involved.
However, despite all of the above challenges, the IFRS standards have a future for use by the US
business organizations. This is because, the two organizations that come up with the standards
(IASB and FASB) have been working together as team to tackle the differences between their
standards, i.e. issues on financial instruments, insurance, leases and revenue recognition
(Schmidt and Schoeppey, 2016). By working out these differences, each organization will be
able to update their standards to a better level hence making them both effective and efficient for
any organization in the US. Therefore, the US organizations will have an opportunity to choose
between the GAAP or IFRS standards.
CONCLUSION
The IFRS standards are technically ineffective, inefficient and irrelevant for businesses situated
in US. These standards are difficult to be adopted especially by the public business
organizations. The organizations seem to face more challenges and problems when using the
IFRS standards than any other financial or accounting standard. Some challenges are caused by
the IFRS itself while other are brought about due to business environment in the US. For this
reasons, the US organizations opt to use the GAAP standards provided by the FASB. Research
has proved that these are the best standards for the businesses in US. However, these
organizations can do businesses and form partnerships with foreign organizations that have
already adopted the use of IFRS. Furthermore, research has shown that over the recent years,
FASB and IASB have been working together with an aim of bringing the IFRS and GAAP
standards closer together. This will certainly enable the standards to be rectified where wrong as
well as help the businesses by providing with a variety of standards to choose from.
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REFERENCES
Chan, A.L.C., Hsu, A.W.H. and Lee, E., 2013. Does mandatory IFRS adoption affect the credit
ratings of foreign firms cross-listed in the US? Accounting Horizons, 27(3), pp.491-510.
Diana-Andreea, T., 2014. The Application of International Financial Reporting Standards in
Romania: Advantages and Main Problems. Management Strategies Journal, 26(4), pp.271-277.
Hillman, A.D., Heaston, P.H. and Dodd, J.L., 2012. Convergence or Adoption of IFRS in the
United States? Drake Management Review, 1(2), pp.5-8.
Joos, P.P. and Leung, E., 2012. Investor perceptions of potential IFRS adoption in the United
States. The Accounting Review, 88(2), pp.577-609.
Kaya, D. and Pillhofer, J.A., 2013. Potential adoption of IFRS by the United States: a critical
view. Accounting Horizons, 27(2), pp.271-299.
Lourenço, I.M.E.C., Branco, M.E.M.D.A. and Castelo, D., 2015. Main consequences of IFRS
adoption: analysis of existing literature and suggestions for further research. Revista
Contabilidade & Finanças, 26(68), pp.126-139.
Schmidt, G. and Schoeppey, K., 2016. Which IFRS Should the United States Adopt? Advances
in Business Research, 7(1), pp.29-50.
Trăistaru, D.A., 2015. Ethics and Morality in the Accounting Profession. Ovidius University
Annals, Series Economic Sciences, 15(2).
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