Do you think the change towards IFRS is a good idea?
Manager 1: This change is definitely going to be a very positive change. There are no doubt a lot of advantages that IFRS has over the GAAP. Firstly it is going to bring the entire world at the same level. There would be better comparability of organizations across the globe. The differences in financial reporting of various countries would reduce. A business can present its financial statements on the same basis as its foreign competitors, making comparisons easier. Furthermore, companies with subsidiaries in countries that require or permit IFRS may be able to use one accounting language company-wide. IFRS is going to bring in much more transparency, consistency and reliability than has been seen in the GAAP. This is basically because of the stringent rules that IFRS brings along with it and the consistency that it brings to organizations across the globe.
Manager 2: Both GAAP and IFRS have their respective advantages and disadvantages. It is very tough to say at this stage whether the change towards IFRS is a good idea or not. There are many companies which are migrating to IFRS even without it being mandatory. The main advantage of it being that it enables globalization in a better manner. If companies in the US switched over to IFRS it would make transactions and deals with companies who operate under IFRS much easier. However IFRS brings in a lot of challenges with itself. Training of the accountants, provision of IT systems etc. would all be part of that challenge. If companies are able to go through these challenges, then IFRS would sure be a boon to all across the globe.
Analysis: A worldwide consensus has been building for many years on the need for high-quality global accounting standards that would better serve investors and facilitate more efficient allocation of capital. While companies in some countries have already seen the change, companies in other countries are still preparing themselves for the change. There have been divergent views on the transition. While some companies are ready to move to IFRS even though it is not mandatory, others are resisting the change. While IFRS brings with it a lot of advantages, it is going to be a big challenge to implement the IFRS. Everywhere IFRS are being implemented, organizations are struggling to come to grips with the new system. Implementing IFRS brings the need for change in the format of accounts, different accounting policies and more extensive disclosure requirements. In many EU countries, technical differences between local generally accepted accounting principles (GAAP) and IFRS are numerous, and the costly and resource-consuming conversion process could last up to 24 months. This is the reason why a lot of companies in the US are also resisting the transition to IFRS. Although they recognize the advantages of the new rules and accounting standards, they fear the challenges that it brings along. (Bruce MacKenzie, Andy Simmonds, 2005).
Expertsmind.com offers unique solutions in accounting.