GAAP vs IFRS and Convergence

learn& earn

21 Jun 201803:06

Summary

TLDRThis video script explores the differences between GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards), highlighting their establishment by the FASB and IASB respectively. It discusses the Norwalk Agreement and the SEC's Roadmap, which aimed at convergence but faced challenges due to high conversion costs and the need for U.S. influence. The video also mentions the legal implications of shifting from U.S. GAAP to IFRS, concluding that it's currently not feasible for the U.S. to adopt IFRS.

Takeaways

📚 GAAP stands for Generally Accepted Accounting Principles and represents the accounting standards used in the U.S. for financial reporting.
🏢 GAAP is established by the FASB, the Financial Accounting Standards Board, which is a private-sector organization overseen by the SEC, the Securities Exchange Commission.
📈 The FASB has organized GAAP into a codification system with 90 subtopics under nine main topics, simplifying the search for specific accounting standards.
🌐 IFRS, International Financial Reporting Standards, are created by the IASB, the International Accounting Standards Board, to promote global economic integration.
🤝 There have been ongoing convergence efforts between GAAP and IFRS since 2002, aiming to harmonize accounting standards worldwide.
📝 The Norwalk Agreement was signed in 2002 by FASB and IASB, marking the beginning of formal convergence efforts.
🚧 The SEC's Road Map in 2008 outlined conditions for the U.S. to consider shifting to IFRS, but further studies revealed key differences between the two standards sets.
❌ In 2012, the SEC issued a final report concluding that it was not feasible for the U.S. to adopt IFRS due to high conversion costs and the need for U.S. influence on standards.
📖 The script mentions a glossary of terms to help keep track of the many acronyms used in accounting.
🎓 An interview with an intern at the FASB from the University of Illinois at Urbana-Champaign is promised to be featured at the end of the week's lectures.
🔗 U.S. laws, regulations, and contracts often reference U.S. GAAP directly, which would incur legal fees to change if IFRS were adopted.

Q & A

What does GAAP stand for?
-GAAP stands for Generally Accepted Accounting Principles. It is the set of measurement and disclosure rules used in the U.S. to develop financial statements and related notes.
Which organization established GAAP in the United States?
-GAAP was established by the FASB, which stands for Financial Accounting Standards Board.
Where is the FASB based?
-The FASB is based in Norwalk, Connecticut.
What does the acronym IASB stand for in the context of accounting standards?
-IASB stands for International Accounting Standards Board, which is responsible for creating International Financial Reporting Standards (IFRS).
What is the Norwalk Agreement?
-The Norwalk Agreement is a pact signed in 2002 between the FASB and the IASB, aimed at convergence efforts between U.S. GAAP and IFRS.
What was the SEC Road Map and what was its purpose?
-The SEC Road Map was a document issued in 2008 that outlined the conditions before the U.S. would consider shifting to IFRS.
Why did the U.S. not adopt IFRS according to the 2012 SCC report?
-The 2012 SCC report concluded that it was not feasible for the U.S. to adopt IFRS due to high conversion costs for U.S. companies, the need for stronger U.S. influence on the standards, and the fact that many U.S. laws, regulations, and contracts reference U.S. GAAP.
What is the significance of the codification of Accounting Standards?
-The codification of Accounting Standards organizes the vast number of U.S. GAAP pronouncements into 90 subtopics and nine main topics, making it easier to locate specific accounting standards.
How can one keep track of the many acronyms in accounting?
-One can refer to a glossary of terms to help keep track of the various acronyms in accounting.
What is the relationship between the FASB and the SEC?
-The FASB is a private-sector body with oversight from the SEC, which is the Securities Exchange Commission.
What is the significance of the interview with an intern at the FASB mentioned in the script?
-The interview with an intern at the FASB provides an interesting perspective on the workings of the organization and insights into the field of accounting standards, featuring a University of Illinois at Urbana-Champaign graduate.

Outlines

00:00

📊 Introduction to GAAP and IFRS Accounting Standards

This paragraph introduces the two main accounting standards, GAAP and IFRS. GAAP stands for Generally Accepted Accounting Principles and is the set of measurement and disclosure rules used in the U.S. for financial statements and related notes. It is established by the Financial Accounting Standards Board (FASB), a private-sector body with oversight from the Securities Exchange Commission (SEC). The paragraph also mentions the convenience of the codification of Accounting Standards and the upcoming interview with an intern at the FASB, who is a University of Illinois at Urbana-Champaign graduate.

Mindmap

Keywords

💡GAAP

GAAP stands for Generally Accepted Accounting Principles. It is the set of accounting rules and standards used in the United States for preparing financial statements. In the video, GAAP is discussed as one of the two main accounting standards being compared, highlighting its significance in the U.S. financial reporting system.

💡IFRS

IFRS stands for International Financial Reporting Standards. These are a set of global accounting standards developed by the International Accounting Standards Board (IASB) to provide a common set of accounting rules for entities to follow when preparing their financial statements. The video script discusses IFRS in comparison to GAAP, emphasizing the ongoing efforts for convergence between the two standards.

💡FASB

FASB stands for the Financial Accounting Standards Board. It is the organization responsible for establishing and improving standards of financial accounting and reporting in the United States. The script mentions FASB as the body that has established GAAP and is based in Norwalk, Connecticut.

💡IASB

IASB stands for the International Accounting Standards Board. It is an independent, international organization that develops and enforces IFRS. The script refers to IASB as the creator of IFRS, indicating the global scope of its influence in financial reporting.

💡Convergence

In the context of the video, convergence refers to the efforts to harmonize GAAP and IFRS, aiming to reduce differences between the two sets of accounting standards. The script discusses the history of these efforts, starting with the Norwalk Agreement in 2002, and the challenges that have been encountered.

💡Norwalk Agreement

The Norwalk Agreement is a historical reference mentioned in the script, which was signed by FASB and IASB in 2002. It signifies the beginning of formal efforts to converge U.S. GAAP with IFRS, aiming for a single set of high-quality global accounting standards.

💡SEC

SEC stands for the Securities and Exchange Commission. It is the U.S. regulatory authority responsible for enforcing securities laws and regulating the securities industry, including overseeing the financial reporting process. The script mentions SEC's oversight role over FASB and its consideration of IFRS adoption.

💡Codification

In the context of the video, codification refers to the organization and summarization of accounting standards into a structured format, such as the 90 subtopics and nine main topics mentioned in the script. This process makes it easier for professionals to locate and apply specific accounting standards.

💡Pronouncements

Pronouncements, in the script, refer to the official statements or rules issued by FASB that constitute the body of U.S. GAAP. The script notes that there are thousands of U.S. GAAP pronouncements, indicating the complexity and breadth of the accounting standards.

💡Glossary of Terms

The script mentions a glossary of terms as a helpful resource for viewers to keep track of the numerous acronyms and accounting terms used in the video. This suggests that understanding the specific language of accounting is crucial for comprehending the material discussed.

💡Adoption

Adoption, in the context of the video, refers to the potential shift from U.S. GAAP to IFRS. The script discusses the SEC's Road Map and the conditions under which such a shift would be considered, as well as the reasons why the U.S. ultimately found it infeasible to adopt IFRS.

Highlights

Introduction to GAAP and IFRS as two types of accounting standards.

GAAP stands for Generally Accepted Accounting Principles, the measurement and disclosure rules used in the U.S.

Established by FASB, the Financial Accounting Standards Board, based in Norwalk, Connecticut.

FASB is a private-sector body with oversight from the SEC, the Securities Exchange Commission.

Upcoming interview with a FASB intern, a University of Illinois at Urbana-Champaign graduate.

Codification of Accounting Standards summarized into 90 subtopics and nine main topics.

Existence of thousands of US GAAP pronouncements, with a system to locate specific standards.

A glossary of terms is available to help keep track of accounting acronyms.

IFRS, the International Financial Reporting Standards, created by the International Accounting Standards Board (IASB).

The global economy necessitates convergence of accounting standards, with efforts ongoing since 2002.

The Norwalk Agreement was signed by FASB and IASB in 2002 to promote convergence.

SEC Road Map in 2008 outlined conditions for the U.S. to consider shifting to IFRS.

2011 studies identified key differences between U.S. GAAP and IFRS.

2012 SCC final report concluded U.S. adoption of IFRS is not feasible due to high conversion costs and the need for U.S. influence.

Legal and regulatory references to U.S. GAAP would incur additional legal fees to change.

The importance of understanding GAAP and IFRS in the context of global economic integration.