Hans off our GAAP!

IASB Chair Hans Hoogervorst
(Photo from IFRS)

Hockey93 writes:
The chairman of the IASB says that the main thing need from the U.S now in regards to a transition to one set of standards is clarity on which way the U.S will decided to go. He said this is very important because a transition is going to be very time consuming and costly and should be started as soon as possible.

I do not think the U.S should allow U.S companies to use IFRS in preparing their financial statements. For one thing, large differences still exist as noted in the article:  

“The boards had to decide whether obligations between two parties should be netted in the balance sheet if the reporting entity can only offset these amounts only in times of stress, the U.S. approach, or must also be able to and will do so at all times, which is our approach,” he explained. “The difference can be as big as 40 percent of a bank’s balance sheet”. 
This is just one example of a major difference between the two standards and many others exist. 
I also don’t think IFRS should be allowed because it isn’t a rule-based approach, it is principles-based. IFRS requires much more judgement on behalf of management. This leaves a great amount of room for financial statement manipulation. Whereas with U.S GAAP, there is a much more limited amount of judgement allowed. 
Lastly, convergence to a new standard would cause a great deal of problems for analysts, financial statement preparers, auditors, and all other users because they do not know IFRS. All users of financial statements would have to learn a new set of accounting standards before any work on or with the statements could begin. This process would be very time consuming and expensive. 
U.S. GAAP works fine for the most part, why completely change what isn’t completely broken? What do you think?

About Mark P. Holtzman

Chair of Accounting Department at Seton Hall University. PhD from The University of Texas at Austin. Worked at Deloitte's New York Office. BSBA from Hofstra University.


  1. I agree that the benefits of convergence to IFRS are not worth all the headaches that the process would cause. It is perfectly acceptable that every country has different laws, regulations, customs, etc. so why is it necessary for them to share financial reporting standards? As long as an investor can understand and rely on the validity of a company's financial statements, then there is no reason for uniform standards between the US and other nations.

  2. I do not think the US should allow IFRS to be used either. As stated above, being that IFRS is principle based and not rule based, it allows room for judgemet calls by management and with that level of freedom, it may cause even more fraudukent scandals then we have seen in the last decade. US GAAP is the only method that US should use. While there may be differences, it is understandable and relevant to foreign investors and so I see no need for the convergence.

  3. I actually don't agree, although the process of implementing the IFRS standards may be a lot of hard work and challenging. I feel that the U.S. should convert to IFRS to better fit in with the competition internationally. It may be a good approach though to implement these standards slowly and maybe even discuss making changes to some.

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