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Abstract
In todays business, markets are demanding increasing conformity due to worlds capital
markets tend to globalisation. This lead to the introducing of International Financial Reporting
Standards (IFRS) which is a comprehensive, principles-based system of accounting standards and
developed by the International Accounting Standards Board (IASB) as a common standards apply in
everywhere. However, only United States still remains its own U.S. Generally Accepted Accounting
Principles (U.S. GAAP) which is developed by Financial Accounting Standards Board (FASB) which
is not a rigid set of rules but flexible guidelines and are rules based. Recently, FASB has decided to
adopt IFRS in United States. Nevertheless, the convergences of US GAAP and IFRS have bring some
benefits which included increase comparability, reduce the complexity and reduce the international
differences of financial statement and problems which included loss contingency, dual reporting system
and human capital readiness. Currently, they have work together to achieve the converged solution for
Revenue Recognition and plan to achieve converged solution for Leases. At last, I also evaluate the
decision on the convergence of US GAAP and IFRS.












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Introduction
In todays business, markets are demanding increasing conformity due to worlds capital
markets tend to globalisation. Thus, it becomes more difficult for the investors and creditors to make
comparison on companies financial statements among different countries. This, lead to the introducing
of accounting standards which is a guidelines regarding to the principles and methods on preparing the
financial statements to provide a true and fair view to the investors and creditors about the companies
economic performance (Tulsian 2006). Nevertheless, many countries have converted to and
implemented the International Financial Reporting Standards (IFRS), but, only United States is still
remains its own U.S. Generally Accepted Accounting Principles (U.S. GAAP) (Deegan 2012, pp25-33).
IFRS (Ball 2006) is a comprehensive, principles-based system of accounting standards which
is developed by the Interntational Accounting Standards Board (IASB), an independent organisation
which based in London, UK. They are committed in setting a single set of high quality, enforceable
standards that can apply equally to financial reporting by public companies globally in order to provide
general guidance on preparing financial statement (Scanlon & Patch 2010, p11). US GAAP (Luxottica
Group 2013) is a standard guideline of accounting rules for financial accounting and preparing
financial statements to private and public trading companies in United States. They are developed by
the Financial Accounting Standards Board (FASB) which is not a rigid set of rules but flexible
guidelines and are rules based. The idea of convergence between US GAAP and IFRS is actually due to
the collapsed of Enron and the scandals have shaken the complacency of American regulation to the
core. Therefore,in September 2002, when after joint meeting of IASB and FASB and issued the
Norwalk Agreement (Alexander, Britton & Jorissen 2011, p48) which affirmed their mutual
commitment to work towards converging the US GAAP and IFRSs (Picker et al. 2009, p24). The
purpose of the convergence is to develop common, high-quality standards with ultimate goal of a single
set of high-quality accounting standards (Derstine & Bremser 2010, p6). They are trying to eliminate
the differences between two standards in order to develop a common standard which is quality so that
investors can use the financial information to make a precise decision (Alexander, Britton & Jorissen
2011, p49; Pacter 2003). At the same time, they are trying to replace the weaker standards with
stronger standards to satisfy the needs of investors (Alexander, Britton & Jorissen 2011, p49).
The convergence of US GAAP and IFRS will bring some benefits to the investors and
creditors in United States. Firstly, it helps to increase the comparability of financial reports prepared
among different countries and providing better quality information on investment and credit decisions
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to participants in international capital markets (Deegan 2012, p33). This lead to the increasing investors
understanding and confidence on the financial reports (Securities and Exchange Commission 2010) so
that they can make a precise investment decision. At the same time, with one set or financial reporting
standards it will reduce the financial analysis costs through analysts not having to recast information on
a common basis and requiring knowledge (Deegan 2012, p33). Secondly, it helps to reduce
international differences in financial reporting requirements for participants in international capital
markets by removing the barriers to international capital flows and also increasing the understanding of
foreign investors (Deegan 2012, p33) in order to assists them on cross-border acquisitions and
diverstitures which will rewards investors with increased takeover premiums (Ball 2006). Thirdly, there
is a potential to reduce the financial reporting complexity for large multinational companies that
presently prepare many different sets of financial statements in different forms and at the at same time
reduce the financial reporting costs (Deegan 2012, p33; Paul & Burks 2010, p4).
However, there are still some problems which are potentially influence the convergence of US
GAAP and IFRS successfully. Firstly, the transition of US GAAP to IFRSs existing standards will
cause the US public companies loss contingencies (Scanlon & Patch 2010, p12). This is because of the
lower recognition and disclosure thresholds which create problems for financial reporting in the highly
litigious US business environment. Thus, the companies will be required accruals on a more frequent
basis and increased disclosure of litigation contigencies which could diminish the reliability of
financial statements and threaten important attorney-client protections. Secondly, the conversion of US
GAAP to IFRS will probably create a risk on dual-reporting system (Scanlon & Patch 2010, p12).
Although Securities and Exchange Commission (SEC) has the authority to determine methods of
financial reporting under the federal securities laws, some issuers report financial information to other
federal and state regulators but are limited. As under the tax reporting system, SEC has no statutory
authority to alter issuers' other financial reporting obligations, so a transition to IFRS as under the
federal securities laws could lead to a double tax reporting under both IFRS and US GAAP(Scanlon &
Patch 2010, p13). At the same time, with double reporting system will the lead to high cost of
preparing financial reporting under two sets of accounting standards (James 2011). Thirdly, the
transition of US GAAP to IFRS would require a significant investment on human capital readiness. All
those involved in the financial reporting system including issuers, auditors, attorneys, regulators, and
investors, would need to educate themselves about IFRS (Scanlon & Patch 2010, pp13-14). According
to Heffes (2008), the US compnies states that the systems and processes which related to data
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collection and financial reporting controls must be evaluated and revised therefore IFRS can becomes
ingrained in companies processes. But, those problems can be resovable and just needs some times.
According to PricewaterhouseCoopers LLP (2012), in 2010, FASB and IASB have released an
exposure draft(ED), Revenue from Contracts with Customers, which proposing a converged model that
would have a significant impact on the current revenue recognition among US GAAP and IFRS. In
2011, the boards believe that a more consistent application can be achieved by exercising a single,
contract-based model where revenue recognition is based on changes in contract assets and liabilities.
So, the boards have proposed a model which contains five-step process and the entities would need to
follow it if successfully converged. First, need to identify the contract with a customer. Second,
identify the separate performance obligations in the contract. Third, determine the transaction price.
Fourth, allocate the transaction price to the separate performance obligations. Fifth, recognize revenue
when each performance obligation is satisfied (Lamoreaux 2012). During the second half of 2012 and
into 2013, the boards redeliberated the proposals and there were some decisions made which is to
remove the guidance on the identification and measurement of onerous obligations from revenue
project; rejecting a proposed practical expedient that allowed contract manufacturers automatically
apply the units-of-delivery to measure progress, setting out a new approach for licences; under which
they would be analysed into two categories with different revenue profiles and rejecting certain
exceptions that might have permitted current practice to continue in certain sectors. On December 2012,
the Board concluded substantive redeliberations of the core recognition and measurement principles in
the propsed revenue recognition model (KPMG IFRG Limited 2013). However, in February 2013
(IFRS Foundation 2013), the boards have achieved converged solutions for Revenues Recognition
accounting which mean all the company have to follow the steps and they also try to expose converged
proposals for accounting for Leases for the coming year. Recently, according to Financial Accounting
Standards Board (2013), they have updated project plan to comminicate information about its
standards-setting activities to stakeholders. On 3 April of 2013, they have confimed that the Revenue
Recognition has successfully converged.
In a nutshell, in my opinion the decision on the convergence of US GAAP and IFRS will be
correct decision. IFRS is an international accounting standard and many countries have developed it as
guideline for them to prepare financial statements for investors and creditors compare the company
economic performance. As compare with US GAAP, IFRS will be easily for investor to company due
to many companies have used it whereas US GAAP is only use in United States and it will be very
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difficult for investor to compare among different countries. Although US GAAP is more rule based and
flexible than IFRS which is less detail and more principle based but its standards cannot apply to every
country. However, there is a need of collaboration between IASB and FASB so that this convergence
can be successful. Whenever there is a problem, they should work together to find out the problem and
solve it. This convergence may bring higher accounting cost for FASB but is only the first two years
and after that they can save the cost and prevent double accounting system. Even though the
convergence have brought some challenges to US but it can be solve as long as IASB and FASB work
together and develop a harmonisation accounting standards.
















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