Unifying the World Economy Through International Accounting Standards
December 2, 2008 by Lela Davidson
Filed under Finance
In August the SEC proposed allowing some large American corporations to begin using international accounting standards as early as 2009, as well as requiring adoption by all American companies by the year 2016. However, the change in financial statement reporting could come sooner – as early as 2014 for large companies.
This move by the US to international accounting standards goes a long way toward establishing a unified set of world standards, simplifying the process of comparing companies for investors and bankers.
Who’s First to Adopt International Accounting Standards?
To be allowed to use the international standards early, a company must be among the 20 largest in its industry internationally whose competitors are already using the international standards.
Companies that follow international accounting rules and have securities registered to trade in the United States are not required to reconcile their books to US rules. This leaves investors with two sets of accounting rules to comprehend.
Apples to Apples?
The general consensus is that in theory a uniform set of worldwide standards is good for investors, some are concerned that the account balances prepared by professionals with different educations and backgrounds may not truly be comparable. U.S. companies and auditors don’t have much time to learn new accounting rules that as yet are not yet the standard in university accounting curriculum.
If the complete road map to international standards is adopted, American accounting rules will change significantly. Not only are there vast differences between US standards and international rules, but the level of professional professional judgment required by auditors using a standards system can differ significantly from our US rules-based system.
What does this mean for accounting education?
What about business education in general?
Are we moving toward an completely international approach to business training?
Who’s On Board?
The Big 4 accounting firms have embraced the international standards. And the SEC’s approval of early adoption for the largest US companies seems to follow suit. This is a move to ensure the United States doesn’t isolate itself from as other countries move to international standards.
We’ll be keeping you up to date on the news regarding the US adoption of international accounting standards.
Image Credit: rubberpaw, Flickr
We are the world, we are the accountants?!
I think this is a good idea. Accounting practices vary, sometimes drastically, from company to company within the U.S. so one can only imagine how the practices may differ across countries.