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:

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