GAAP vs IFRS and Convergence

Summary

This 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.