GAAP vs IFRS and Convergence
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
- π GAAP stands for Generally Accepted Accounting Principles and represents the accounting standards used in the U.S. for financial reporting.
- π’ 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.
- π The FASB has organized GAAP into a codification system with 90 subtopics under nine main topics, simplifying the search for specific accounting standards.
- π IFRS, International Financial Reporting Standards, are created by the IASB, the International Accounting Standards Board, to promote global economic integration.
- π€ There have been ongoing convergence efforts between GAAP and IFRS since 2002, aiming to harmonize accounting standards worldwide.
- π The Norwalk Agreement was signed in 2002 by FASB and IASB, marking the beginning of formal convergence efforts.
- π§ 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.
- β 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.
- π The script mentions a glossary of terms to help keep track of the many acronyms used in accounting.
- π 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.
- π 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
π 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
π‘GAAP
π‘IFRS
π‘FASB
π‘IASB
π‘Convergence
π‘Norwalk Agreement
π‘SEC
π‘Codification
π‘Pronouncements
π‘Glossary of Terms
π‘Adoption
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.
Transcripts
[Music]
[Laughter]
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now we're going to take a look at the
two types of accounting standards GAAP
versus IFRS we'll talk about the various
aspects of each and see where they
converge in some cases where they do not
converge so what does GAAP stand for it
stands for generally accepted accounting
principles or GAAP the measurement
disclosure rules that are used in the
u.s. to develop our financial statements
as well as the related notes to our
financial statements GAAP was
established by the faz be another
acronym which stands for Financial
Accounting Standards Board that which is
based in Norwalk Connecticut the fast B
is a private-sector body with oversight
from the SEC or the Securities Exchange
Commission stay tuned for an interesting
interview with an intern at the faz bee
who was an University of Illinois at
urbana-champaign graduate you'll find
that video at the end of this week's
lectures all right so the codification
of Accounting Standards has been
conveniently summarized in their proxy
90 subtopics as well as nine main topics
which you can see on these two slides
keep in mind there are literally
thousands of US GAAP pronouncements so
this makes it much easier to locate the
particular accounting standard you're
currently looking for as you probably
noticed by now there are lots of
acronyms and accounting of this so feel
free to refer to my glossary of terms to
help keep track of them so the u.s.
standards we've talked about our GAAP
and basically they come into place
through the faz be the Financial
Accounting Standards Board then we have
the international financial reporting
standards labeled IFRS which are created
by the International Accounting
Standards Board the IASB sort of makes
sense right
obviously having mobile standards is not
an ideal situation in this global
economy that we have today and
convergence efforts have been ongoing
since 2002 back in 2002 both
organizations the faz be in the IASB
sign what we called the Norwalk
agreement remember where the files be is
located in Norwalk Connecticut thus the
name then in 2008 the SEC Road Mac
listed out the condition
before the us shift would be considered
to go to IFRS unfortunately three years
later more studies came out that
identified key differences in these two
sets of standards and then finally a
year later in 2012 the SCC issued its
final report where it reached the filing
conclusion and unfortunately not a good
one basically it's not feasible for the
u.s. to adopt IFRS due to two reasons
one is the high conversion cost for the
US companies also a second one
importantly the need for the u.s. to
have stronger influence on the standards
and even a third less important one to
be many of our laws and regulations and
contracts we have today have direct
references to US GAAP which would incur
some legal fees to change those
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