Accounting Debate Illustrates Challenge Over International Standards
Tuesday, October 9, 2012
While many companies worldwide use the International Financial Reporting Standards (IFRS) to determine what’s listed as an asset or liability, the United States is one of the few countries that still uses its own accounting standards (U.S. GAAP).
Recently, there has been pressure to get a single set of international accounting standards for every company to follow, regardless of where it’s based. But that’s easier said than done.
"The Securities and Exchange Commission was working on a plan to move U.S. companies to an international standard," says Jing Lin, Ph.D., assistant professor of accounting from Saint Joseph's University in Philadelphia. "But the move seems to be going slower than anticipated."
The most recent setback to global standardization came during a debate over leases. A plan to reach a single rule for determining how companies should account for leases in their balance sheets fell apart. Instead, U.S. and international standard setters agreed to a compromise which would allow companies to use two methods to account for leases.
The lease dilemma is just one example of the hurdles encountered in an attempt to reach a single set of accounting standards worldwide.
“When U.S. companies do business around the globe, they’ll often find themselves having to prepare two sets of financial statements,” Lin says. “Even accounting majors have to learn two sets of accounting standards in case they’re not entering the world of IFRS yet.”
While a single accounting standard may be a tall order, the two sides may yet find common ground.
“This is information investors want,” Lin explains. “It would be much easier if they could compare companies from different countries without having to go through extra calculations.
“But the bottom line is it will have to be a high-quality, transparent standard if that’s going to happen.”
Lin can be reached for comment at firstname.lastname@example.org, 610-660-3246 or by calling University Communications at 610-660-1355.