The US adoption of IFRS

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The U.S. Adoption of IFRS
International Financial Reporting Standards is a set of international accounting standards that guide the organization and reporting of particular transactions information in financial statements (Tan et al. 45). It is now becoming a global standard and has been adopted in more than 100 countries (Tan et al. 53). However, the United States is yet to follow that route, with the General Accepted Accounting Principles (GAAP) still taking center stage in accounting. Should the U.S. adopt IFRS? The discussion in this essay will try to answer this question while considering the advantages and the disadvantages.
The adoption of IFRS by the U.S. will mean that, small companies will be required to prepare only one financial statement because there will be only one set of regulations. It will, therefore, save time and reduce costs that would have otherwise been doubled. It will enable small enterprises to use the saved resources in other business operations which will enhance their development. IFRS is principle-based, as opposed to GAAP which uses an industry-specific method in revenue recognition. Therefore, IFRS provides more freedom to the companies in their financial performance. In addition to that, GAAP requires a company to expense its research and development costs which could otherwise be used in other sectors when if IFRS is implemented.
IFRS also provides easier and improved comparability since the standards and principles used are common.

It will, therefore, make it easier for small companies to involve themselves in cross-border investments with reduced costs on capital. IFRS is a set of 3000 pages while GAAP standards are recorded in a 25000-page document. Clearly, IFRS requires less time to study when compared to the current set of rules used by the U.S. enterprises. For a developing company, and any other organization for that matter, time is of the essence and the easier it is to accomplish tasks, the better.
The costs of implementing IFRS are very high. All firms, regardless of the size, will feel the pinch if the U.S. decides to adopt the new standards. It, therefore, means that small firms, in particular, will have insufficient resources to make the changes. With new policies come new skills, meaning companies will need to hire new officials to help out in financial reports. It is not a guarantee that the benefits will exceed the costs; therefore, it may lead to a collapse of small businesses. If such companies survive, they will be disadvantaged and won’t be able to compete on the same level with firms using less stringent rules in their financial management. The issue with IFRS’ freedom is that it gives managers the ability to exercise their judgments on what to report in their financial statements. A manager’s actions may mislead investors and promote fraudulent activities.
SEC reported that the costs incurred if IFRS was adopted would be around 12% of revenues (Tan et al. 54). There are no guarantees that the benefits would cover the losses and there is no assurance that the reporting inconsistencies in multinational organizations will be eliminated entirely. It is not a risk worth taking because it could lead to economic burden. One of the reasons why IFRS has been recommended is because of its ability to increase consistency and compatibility. However, the meaning of those two words may vary globally hence creating another scenario where countries comply differently. The compliance will vary according to a country’s traditions and culture, and the probability of IFRS replacing this is very low. Therefore, the United States should not adopt IFRS.

Work Cited
Tan, Aldys, et al. “An Investigation into the Potential Adoption of International Financial Reporting Standards in the United States: Implications and Implementation.” Australian Accounting Review, vol. 26, no. 1, Mar. 2016, pp. 45-65.