Account standardization, IFRS and US GAAP Essay

Account standardization, IFRS and US GAAP - Essay Example The general purpose of the financial statement is to be prepared in accordance with the international accounting standards. The need of the accounting standards emerges because auditors and financial analyst are generally confronted with problems of accounting like biasedness, misinterpretation, inaccuracy and ambiguity. To minimize these kinds of errors a set of accounting standards was developed which was universally accepted and recognized. Without these accounting standards each and every business entity had to develop their own business standards which would make it impossible to compare the financial information with other business organizations. International Financial Reporting Standards (IFRS) are accounting principles and standards formulated by the International Accounting Standard Board (IASB) which is situated in London. These established accounting standards are ideally applicable equally to all the organizations worldwide. During 1973- 2000, the international accountin g standards were formulated by the predecessor organization of the IASB formerly known as International Accounting Committee (IAC) (Beke, 2011). Since April 2001, the accounting standards set by IASB are taken into consideration. ... A financial report of high and genuine quality improves their understanding and makes them better informed and also reduces their risk of trading (Beke, 2011) 3) IFRS helps in eliminating most of the financial adjustments that the financial analyst have made historically in order to make the company financial statements comparable internationally (Beke, 2011) 4) IFRS provides reduced information costs and information risk to potential investors (Beke, 2011). Before March, 2008 the US listed foreign issuers of securities were required to prepare financial statements with respect to the US Generally Accepted Accounting Principles (US GAAP) or include reconciliation to US GAAP as a part of the financial statement reporting (Liu, 2011). This step became a prerequisite in the United States of America (USA) because of lack of widely accepted high quality accounting standards. Most of the foreign institutional investors file their annual reports on form 20-F which incorporates reconciliatio n. This reconciliation is often viewed as an unnecessary and expensive step by the foreign issuers of security (Liu, 2011). The European Union, New York Stock Exchange and the American Stock Exchange have allowed the Securities Exchange Commission of USA to allow foreign companies to use the IFRS to list on the US stock markets without the reconciliation or compliance with the US GAAP accounting principles. This was done as IFRS is considered a high quality accounting standards although there are some significant differences between the IFRS and US GAAP accounting standards. However, the investors need to be informed the differences between the IFRS and US GAAP accounting standards for