The FASB and the IASB have made progress towards convergence. The IFRS standards

Question

The FASB and the IASB have made progress towards convergence. The IFRS standards are considered to be more principles based than the U.S. rules-based GAAP. As of 2007, the IFRSs filled approximately 2,000 pages of accounting regulations.* When an IFRS or interpretation does not exist, then judgment must be used when applying an accounting policy.

As of 2007, U.S. GAAP comprised over 2,000 separate pronouncements.† Many of the U.S. pronouncements were dozens of pages, issued by numerous bodies.‡

a. “The IFRS standards are considered to be more principles based than the U.S. rules-based GAAP.” Comment on the implications of this statement, including the
legal implications.

b. U.S. GAAP has been considered by many to be the best GAAP in the world.
Should the United States give up its GAAP?

*Lawrence M. Gill, “IFRS: Coming to America,” Journal of Accountancy (June 2007), p. 71.
†Ibid.
‡Ibid.

Explanation / Answer

Basically, people have a lot more leeway with accounting decisions under IFRS. Personally, I think it's better because of this since letting people use their own discretion can be beneficial, but there's nothing wrong with GAAP either. There's a lot more estimation with IFRS (leases, depreciation to name a few), so you have to be very good at cost allocation to avoid getting numbers that are too far out there to work.

Should the US change from GAAP? Well, even if GAAP is a fine system, it's probably going to happen eventually. IFRS is becoming more commonplace in non-US countries, and a lot of companies in the United States are making plans to switch to IFRS within the next few years. I think some are going to make their books under BOTH GAAP and IFRS standards too.

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