420 Intl ACC

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420 Intl ACC

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For the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB), convergence is always on top of the agenda. These two accounting bodies believe that convergence is one integral step in addressing some areas of significance in financial reporting. There has never been any doubt about convergence bringing about reliability, straightforwardness, and streamlining in financial reporting.

Transparency and uniformity, however, remain the main objectives of convergence. The rule-based system of the US GAAP and the principle-based methodology of the IFRS have without a doubt made convergence more strenuous. While convergence aims at bridging the gap between International Financial Reporting Standards (IFRS) and US GAAP, there still will exist some differences between the two.

In the 2008 Memorandum of Understanding, IASB and FASB identified three areas for convergence. These areas included leases, financial instruments, and revenue recognition while insurance contracts are also reviewed jointly. The efforts of IASB and FASB are given a boost by the seconding and support from the US Securities and Exchange Commission (SEC). Microsoft is an example of a company that uses US GAAP in preparing its financial statements. Oracle, on the other hand, is another US company that uses IFRS in its financial reporting. An examination into the financial statements of both companies presented both similarities and differences in the two accounting standards.

Share-Based Compensation and Earnings per Share (EPS) are some areas that have had a feel of the difference between the two sets accounting principles and standards and the need for convergence. Despite such ‘divergence’, one can still find lots of similarities in the way financial reports prepared by either can be presented. IAS 33 and ASC 260 are provisions in the IFRS and US GAAP respectively that stipulates information to be disclosed on EPS. Because of that, irrespective of the standards used by a public entity; it will always disclose similar information on their common stock. For instance, when one looks at the income statements of companies that use either approach, both diluted and basic EPS can be shown. Both standards utilize the treasury stock method while establishing the effects of both warrants and security options while computing diluted EPS.

Share-based compensation determined by, IFRS 2 in IFRS and ASC 718 and ASC 505-50 in US GAAP, also show similarities between the two accounting standards. Fair value can be described as the amount an asset or liability could be traded in a present transaction involving two willing parties. It is this fair value that can be used by both in accounting for share-based compensations. Estimations from Option-pricing models, in the absence of a market value, it can be used to determine the fair value. This rule is applicable without exception to any company to both employees and non-employees (Brownell, 2011). For investor informati.............


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