Against Convergence Approach
There are many disadvantages of converging U.S. GAAP with IFRS that actually can make sense to some. The IFRS is a principle based system which allow judgment calls to be made by the preparer. The preparer can make calls that can lead a company to release fraudulent representations of their financial information. The IFRS increases the ability for the preparer to manipulate transactional accounting. choose from an increased amount of variations in accounting approaches for similar transactions, and fewer rules for the preparer to consider in determining how to account for a transaction. American and European companies have an increased fraudulent rate compared to the rest of the world and the IFRS can lead to an even higher rate in the U.S.
The costs of converging can be expected to be very high. There are costs associated with IT and from changing from one accounting system to another. Financial reporting improvements will be minor due to the high standards of the U.S. GAAP and these benefits to American investors may not exceed the costs of converging. These costs will burden small and midsize companies that lack the capital and resources needed to cover the costs.
The SEC will lose control and their influence over accounting and reporting practices. The SEC attempts to ensure uniformity and consistency in financial reporting and it can’t enforce uniformity in a principle-based system like the IFRS.
Johnston, A. B. (2014, October 6). [email protected] Retrieved from [email protected] Web site: http://ezinearticles.com/?Advantages-and-Disadvantages-of-U.S.-Convergence-Between-GAAP-and-IFRS&id=8754446
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