November 13, 2007
The International Accounting Standard Committee Foundation's objective is the development of a single set of high-quality international accounting standards that are transparent, understandable, enforceable, and that are rigerously applied. They also seek to use the standards it develops through the IASB as the basis for the convergence of national accounting standards and IFRS into a single set of high quality international accounting standards.
The International Accounting Standard Committee Foundation mandated that the international accounting standards developed by the IASB be of high quality. The establishment of IFRS will be of little benefit if the ultimate result of convergence is a set of standards based on the lowest common denominator.
IFRS and US GAAP are far more similar than they are different. There is substantial influence of US GAAP and U.S. practices on IFRS. Many of the trustees of the International Accounting Standard Committee Foundation and many of the members of the board of IASB are U.S. practitioners, U.S. trained experts, or practitioners with years of experience working with US GAAP on behalf of their clients.
One advantage of having a single set of accounting standards like IFRS is a reduced cost of capital because the same standards will apply rgardless of location. The use of one consistent reporting standard will greatly reduce the time and expense of applying different accounting standards. Translation costs are also eliminated.
Another advantage of IFRS is the enhancement of information for decision making. It establishes a similar basis for comparison. A consistently applied common financial language will enable investors to compare more easily the financial results of companies operating in different jurisdictions and provide more opportunities for investment and diversification.
A third advantage of a single set of accounting standards benefits auditors. It should enable international auditing firms to standardise training and better assure the quality of their work on a global basis. It should also permit internati0nal capital to flow more freely, enabling auditing firms and their clients to develop consistent global practices on accounting problems. For regulators, the confusion associated with needing to understand various reporting regimes would be reduced.
Despite the advantages, even for companies not required to adopt IFRS for reporting purposes, many U.S. companies looking to new markets will need to adopt IFRS to secure licenses, raise capital, or comply with requirements of local regulators. Also foreign customers, vendors, or lessors may require IFARS financial statements.