GAAP or I.F.R.S.

There is a big controversy in the accounting world today. It all revolves around what set of rules a company should have to follow. There are two different sets of rules. The first set is the GAAP (Accepted Accounting Principles), which is the standard in the United States. The second set of rules is the I.F.R.S (international financial reporting standards), which is a set of rules that are set by the International Accounting Standards Board. Most of the controversy comes from the fact that these two sets of rules produce very different results in the finical statements. This makes it hard to compare two companies that use the different set of rules.

For a long time all companies that did business in the United States were required to file with the SEC (Securities and Exchange Commission) using GAAP. In 2008 the SEC decided to start allowing foreign companies to file using I.F.R.S. rules. This has set the United States on a course to adopeding the I.F.R.S. rules as its standard set of accounting rules. There are a couple of factors that have contributed to the move to a global standard. The biggest of these are that the economy is moving more and more to a global market place and with this there needs to be an easy way to compare companies that are not in the same contres. One member of the SEC was recently quoted saying in an interve that investors would benefit from “accounting standards that provide investors with highly comparable, decision-useful information about businesses without regard to their domicile” and that American acceptance will lead to “continued improvements in the efficiency of the global capital markets.”

            It seems like it would be an easy decision for the SEC to just start using the I.F.R.S set of rules to make everything compatible but it’s not. There are several reasons that there is a great resistents to this. First off it would be very costly to the companies in the United States that would have to totally redo their entire accounting practices. This cost could actually be high enough in some cases that some small or newly formed companies would not be able to survive it. Secondly many companies do not want to give up some specific tax breaks that are not available in the I.F.R.S set of rules. These big companies that don’t want to lose these tax breaks do have some influence over the SEC decisions even though they shouldn’t. The third reason is that the International Accounting Standards Board can be heavily swayed by outside influences. In 2002 congress passed the Sarbanes-Oxley law. This is a law that provides American Accounting Standards Board with financing from fees on public companies. This allows them to not depend on contributions that might come with conditions. Such as if the American Accounting Standards Board did not make the contributors happy then they could loss the money. The International Accounting Standards Board still has to deal with this problem. For these reasons the United States should not adopt the I.F.R.S set of rules.

Norris, Floyd. “Accounting That Comes in Flavors.” New York Times 07 07 2011. n. pag. Web. www.nytimes.com