According to an article on Diffen.com, over 110 countries use IFRS, while the United States continues to use GAAP. Generally Accepted Accounting Principles (GAAP) are the guidelines that accountants follow in the United States for preparing and summarizing financial statements; IFRS is a single set of world-wide accounting standards that allows companies to report in one language to the rest of the world, thus simplifying the reporting process. The US Securities and Exchange Commission (SEC) is looking to switch to IFRS in the very near future (“GAAP vs IFRS”). The US is one of the most prosperous countries in the world and it continues to grow. Why would it not adopt IFRS if it does business with so many other countries? After all, IFRS simplifies the guidelines that accountants use by allowing companies to use just one reporting language throughout the world. With hundreds of countries and languages, IFRS is a must have set of standards for accountants to follow. There are quite a few differences between GAAP and IFRS, and outlining why the United States should switch over to IFRS is quite necessary.
The first major reason that the United States needs to consider switching from GAAP to IFRS is the going concern assumption. Going concern is the assumption that businesses will continue to operate for the foreseeable future or at least long enough to accomplish their goals as a business. The business assumes that it will continue to function for at least the next year or so and produce financial statements under the framework of IFRS. The issue with GAAP is the going concern assumption has not been well-developed in the United States under these guidelines (“GAAP vs IFRS”). It is not clearly defined within GAAP and this can cause much confusion. This is one of the many reasons that the US should adopt IFRS. Instead of changing the standards of GAAP, the US could simply change its standards to IFRS. IFRS and GAAP are already much alike, and the United States could simply make a change to benefit itself. Going concern is very important, but the next reason may be the most important of them all.
The next reason that the United States should consider switching to IFRS is because so many other countries in the world are using these standards. According to a journal article from the Global Journal of Business Research, some of the most important countries in the world that use these standards are Canada, France, Germany, and the United Kingdom (A. Fosbre, Kraft, & P. Fosbre, 2009 ). These countries are included on a list of the many countries that are using IFRS today and more countries and regions around the world continue to be added to this list. The United States interacts and trades with these countries very frequently, and adopting the same accounting standards as these hundreds of countries would make accounting procedures that much easier. If the United States wants to get even further ahead in the future, then it must adopt IFRS. As time goes on, more and more countries will start to use IFRS. Many countries will continue to do business with the US, but they will be even more satisfied if the US adopts IFRS. This final reason will highlight why.
A final reason that the United States should consider switching over to IFRS is that it gives the US the competitive advantage that it needs to remain one of the top economies in the world. Using IFRS over GAAP will give the United States an advantage over the countries that don't use IFRS and a better advantage than it currently has with GAAP. As stated in an article on Markspaneth.com, IFRS has the highest quality of information available to investors, regulators and other stakeholders, and is considered the “gold standard” (Henning 2010). This is very intriguing when it comes to investors and other important stakeholders. Investors want to invest in companies that are transparent and high in quality, and IFRS assures just that. If the United States does not switch to IFRS in the near future, it may see its economic dominance take a massive hit.
In summary, IFRS has become the gold standard in today's accounting world. The Generally Accepted Accounting Principles (GAAP) that the United States continues to use are acceptable, but they will not get the US ahead. Too many countries in the world use IFRS and that number continues to grow each year. It is a competitive world in this day and age, and the United States will need to make a change if it wants to maintain its status as a top economy in the world.
Fosbre, Anne B., Ellen M. Kraft, and Paul B. Fosbre. “THE GLOBALIZATION OF ACCOUNTINGSTANDARDS: IFRS VERSUS US GAAP.” GLOBAL JOURNAL OF BUSINESS RESEARCH 3 (2009): 61-71. Web.
“GAAP vs IFRS.” Diffen.com. Diffen LLC, Web. 4 Nov 2015.
Henning, Steven L. “Executive View, Why the US Must Adopt International Financial Reporting Standards.” MarksPaneth . 16 Mar. 2010. Web.