Business Analysis—Qualitative Article - Political factor and Future Scenarios for U.S. Accounting Standards Analysis under IFRS adoption.

This article is the second part of the two-part series analysis to evaluate the implication on economy and politics if the U.S. Security and Exchange Commission (SEC) decide to require U.S publicly listed companies prepare and file financial documents in accordance with International Financial Reporting Standards IFRS. The purpose of the article is to focus on the worldwide competition change and potential political ramifications if the United States switch to IFRS. There is a tendency that globe accounting convergent to unified standard. When it comes to America, it is about the convergence between U.S.GAAP and IFRS. In my view, this topic is very important to the business organization, especially for the multinational corporation, which normally need to prepare multiple financial statement in according with different accounting standard.

In author’s opinion, when United States adopt IFRS, it would largely eliminate the existing competition between IFRS and U.S. GAAP and hence grant monopoly status to IFRS. Based on author’s research, it will cause some problem. First, the investors must prefer to apply the best possible accounting standards if the monopoly standards and standard setters exist. It is obvious that U.S. GAAP have disadvantage in this competition. Second, as the author pointed, “the standard-setting process involves a compromise among a large and very diverse set of constituents from around the world”. (Hail, Leuz, and Wysocki, 2010) Because of lack of argument, future IFRS may not satisfy companies or the investors needs from “outside investor” economies,

Second, the authors illustrated that United States would confront some political risks if IFRS were adopted. As we know, SEC and FASB have authority to overhead and issue accounting standard. However, if the IFRS are adopted, SEC would allow accounting profession from other country to participate set accounting standard in America. Moreover, the U.S firms need monitor other countries regulators’ action even they are not multinational corporation. Another risk is that currently U.S. Company can apply LIFO to file tax return to save profit. Based on accounting standard, , If a company apply LIFO to do tax return, it has to use LIFO to do financial reporting purposes. However, IFRS don’t allow company to use LIFO, thus the company has to amend to IRS, which will increase the U.S companies discontent.

The authors’ post present several possible scenarios for the adoption of IFRS in the United States. Generally speaking, the author believe all of them have pros and cons. The author suggest United States should conducts special adjustment in standard-setting process. For example, it can be add some special disclosure requirements in the financial statement. However, this additional requirements may increase U.S. Companies cost. Thus, although the authors had draw some conclusion , they believed opportunity and challenge still both exists in the future IFRS adoption research. In my view, this article is very practical. As I mentioned, the convergence of accounting standard is an inevitable process. Therefore, either U.S.company or government body should prepare on this change. Based on different evolution of financial reporting standards., management and leadership should anticipate new environment and make reasonable decision to avoid risk and grasp opportunity.


Reference

Luzi Hail, Christian Leuz, & Peter Wysocki (2010). Global Accounting Convergence and the Potential Adoption of IFRS by the U.S. (Part II): Political Factors and Future Scenarios for U.S. Accounting Standards. Accounting Horizons, Vol. 24, No. 4, 567–588. Retrieved from:

http://libproxy.uhcl.edu:2057/ehost/detail?vid=7&hid=10&sid=86bf006a-e4bd-4041-ac5a-bef2d141cb26%40sessionmgr13&bdata=JnNpdGU9ZWhvc3QtbGl2ZQ%3d%3d#db=bth&AN=56471175

The Future of the U.S. Business Model and the Rise of Competitors by Peter Cappelli

This article explains how the United States has influenced the organization of business activities around the world and predicts the impact of competition on the future of business models as the global economy changes.  One of the purposes of the article is to give an overview of how the United States business models and practices have influenced the last 50 years of global business. This article is important because it tracks the past influence the United States business model had in the global market place and explains the future competition the United States model will have going forward. As the global competitive landscape changes it will be important to understand how other countries business models affect the firm’s competition in a global marketplace.

After World War II, the United States became a powerhouse of industrial ideas sharing ideas to the global community of a corporate model of ownership and organization, large scale production, open markets, formal organizational structures and workplace organization based on collective bargaining which at the time was the only model for a growing economy (Capelli 2009). In the 1970’s, the rise of Japanese management practices influenced the international business community (Capelli 2009). Deregulation in the 1970’s influenced the global thought of what it takes to be a successful economy. The United States was a great example of how economies could benefit from a decreased role of government and pursued an increased emphasis on the benefits of private ownership. During this time, the idea of a market economy and a democratic government spread like wild fire. “The proportion of countries with democratic governments doubled from 1980 to 2000 to 60%” (Simmons, Dobbin, & Garret) indicating that this business model was gaining increased acceptance around the world. A development in the United States business model that is currently applicable to the competitive environment is the focus on financial goals and shareholder value (Capelli 2009). Financialization also gave rise to the executive performance based compensation in an effort to maximize shareholder wealth which evidence showed led to increased firm performance (Capelli 2009). Repercussions of executive based compensation occurred in the 1990’s when scandals filled the headlines with executives influencing stock prices by manipulating financial data. The Sarbanes-Oxley Act of 2002 was in reaction to the scandals requiring United States companies to increase transparency of financial information ( Capelli 2009). During this time, the “Asian Tigers” (South Korea, Singapore, Hong Kong, and Taiwan) had rapid growing economies despite the fact that they did not follow the market capitalism model. These governments were the opposite of the United States economy that did have full democracies, controlled trade practices, and government subsidies that allowed these industries to develop (Capelli 2009). China and India also showed fast growing economies in the early 2000’s with a communist political system and heavy government regulation. The BRIC nations all have higher government regulation than the United States and are experiencing growth suggesting that the United States business model may not the only solution for economies to grow. Evidence to support this shows that from 1950-1990 the United States accounted for 27% of the world gross domestic product in 2008 the number dropped 20% (Capelli 2009). Also, in 1980 2 of the largest 10 corporations were based outside the United States. In 2008, 6 out of 10 were based outside the US suggesting that the world economy is changing and the United States is becoming less influential in the global marketplace. To further support that global competition is changing  the National Intelligence Council of the U.S. argues that the “fastest growing economies in the near future will likely follow a “state capitalism” approach that sees a powerful role for government in shaping and controlling business (Capelli 2009).

This article is important for practicing managers as the global competitive environment changes and there will be increased competition from foreign firms that have industries that are heavily subsidized and regulated making competition more difficult for domestic companies. Practicing managers will also need to consider that the market economy may not be the only way economies are able to grow. Companies should also consider that as economies for heavily regulated industries thrive the United States government might increase regulation in an effort to emulate the successful growing economies.

Cappelli, P. (2009). The Future of the U.S. Business Model and the Rise of Competitors. Academy Of Management Perspectives, 23(2), 5-10. doi:10.5465/AMP.2009.39985536

 EBSCO Host Direct Article Link

sixtrees introduction

hello all,
I am a graduate student majoring in Accounting and will graduate in this fall semester. I gave up studying this major because I thought it was just related to numbers and calculations which made me headache. In fact calculations are just a tiny and simple part in accounting. I realize that accounting is really interesting. I hope I can communicate with you guys regarding accounting and somethings happened interesting and funny. Since I have no work experiences, I wish you all can share your working experiences with me.

Emethtony introductory post

Hello, everyone,

 Now ,I am a full time student in the M.S. accounting program. This is my last semester. 
Several years ago, I was working on an advertisement company in China as an financial assistant 
when I graduated. I have a philosophy and financial management degree. I am excited because this 
course is totally different than the other class. As an accounting student, I need to learn and 
memorize lots of knowledge if you want to pass exam. However, i rarely integrate them to analyze
 problem. Thus, with the lots of reading and analysis, I believe i will have a new understanding 
about my major. 

Emethtony

Anon87 Introduction Post

Hello Everyone,
 I am an MBA student in my final semester. I am currently a TA for Accounting Information Systems and  a Software Auditing class. I am/was  a Co-Op at a Federal Agency where I was trained in procurement one semester and as a budget analyst another. I also have a background in economic development where I was an intern and then hired for the summer where I assisted in recruiting Fortune 500 companies to move their headquarters to the city to bring jobs to the area. This was a great experience in working on contracts, assessing the financial strength of the company, and working with models to assess how the company moving to the city would benefit in terms of tangible benefits. I am really excited about this class this semester! I love analyzing everything and then seeing arguments through different views.

Anon87