IFRS Accounting Standards & US Corporations

CONVERGENCE OF IFRS AND US GAAD
Name
Institution Affiliation
MEMORANDUM
TO: Conor and Martin
FROM: Accountant
DATE: 20 July 2018
SUBJECT: CONVERGENCE OF IFRS AND US GAAD
Financial reporting is a crucial part for each company. International businesses are required to have a common standard of making financial reports. As CMC decides to venture into the global market, there are several issues to take into consideration. International business comes with its financial standards. The standards must be followed to maintain a smooth running of the company. There are two significant financial reporting standards namely International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP). The international standards are set up to ensure a swift operation in accounting and report making.
The company must establish some convergence between US GAAP and IFRS to operate efficiently. Convergence means that the two standards work together to give the best quality in terms of accounting standards. The two rules have significant differences. US GAAP is a rules-based standard while IFRS is a principles-based method. Differences are seen in the revenue recognition, inventory valuation and financial statements consolidation (Lin, Riccardi & Wang, 2013). To avoid confusion and promote transparency, the convergence of the two standards is essential. International business requires the inception of an accepted standard in the region. Such factors should be considered when bringing together the two rules.

Switching the standards can be costly to the firm. It may happen due to errors while implementing IFRS. It may affect the trust of the stakeholders and may result in losses if disclosed. The implementation of IFRS is costlier compared to US GAAP. However, the benefits are quite attractive. The reason for the cost is due to the fact that the implementation covers for many different economic regions and is costly. IFRS also requires a more significant workforce. Regarding international transactions, CMC is expected to undertake transactions with different clients. GAAP is rule-based, and IFRS is principle-based. This means that GAAP has a set of rules for which CMC should handle transactions. However, IFRS requires one to use their judgment to process transactions. IFRS does not allow the use of Last In, First Out method while GAAP allows it. LIFO has been shown to reflect a low level of income that is not the actual value.
The two financial reporting standards have numerous differences. The use of the right steps and principles in converging the two can prove fruitful. Convergence will also ensure that the CMC accounting system is free from any errors and efficient. I would recommend that the company bring together the IFRS and GAAD.
References
Lin, S., Riccardi, W., & Wang, C. (2013). Relative Benefits of Adoption of IFRS and Convergence between IFRS and U.S. GAAP: Evidence from Germany. SSRN Electronic Journal. doi: 10.2139/ssrn.2200992