Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
Semester Paper
12/7/15
paper include, but are not limited to, the steep learning curve, irreconcilable differences between
countries, and large costs. Incorporated into this paper to support the argument is research and
studies provided by credible authors.
Introduction to the Potential Adoption of IFRS
Celeste Martello
Semester Paper
12/7/15
Celeste Martello
Semester Paper
12/7/15
with IFRS in academia, the numbers prove that the learning curve that would occur from
adoption of IFRS is too daunting to overcome.
Learning Curves for Current Professionals in the Industry
Furthermore, accounting firms would have to educate current professionals on IFRS since
GAAP is the predominant body of knowledge. This would mean educating all members within
the accounting field in the United States on a completely new set of standards. One could argue
that this would only be challenging because of our natural tendency to be resistance to change,
but that is far too shallow of an argument. Not only would firms within the United States have to
be re-educated, but many firms outside of the United States would also have to be educated on
IFRS. This is due to the fact that many U.S. based global firms around the world look toward
United States GAAP and prepare financials in accordance with GAAP. Kaya and Pillhofer
(2013) found that majority of cross-listed companies file statements with the SEC in accordance
with GAAP and not IFRS. It is highly probably that these companies do not file in accordance
with IFRS because they recognize that it would require educating and training their current
professionals on a new body of standards. According to Selling (2013, 157), IFRS adoption
would mean that all U.S. accountants would have to learn a new language, and so would many of
the accountants at the foreign subsidiaries. Sellings argument indicates that learning new
financial reporting standards is more intricate than it may appear. It is much like learning a
language because all industry practices revolve around the standard-setting bodys guidelines.
For example, IFRS is principles-based rather than rules-based. Professionals would lose the
guidance that rules-based GAAP provides. This would require professionals to exude discretion
and flexibility to a degree in which they are not familiar with. The trend in our current standardsetting shows that current professionals seek guidance and clarification in standards. The fact
Celeste Martello
Semester Paper
12/7/15
that U.S. GAAP experienced professionals rely so much on guidance does not bode well for the
industry if the United States adopts IFRS. Adopting IFRS would require current accounting
professionals to reform their entire basis of education and experience.
How to Educate Firms and Current Professionals
Another matter to think about is how firms will educate professionals on IFRS. What
does this look like? It is argued that the educational transition will not be as formidable as it
seems because firms have already begun to incorporate IFRS into their professional
development. Large firms have begun to put forth effort in training existing professionals, At
the PwC University for faculty in early July, the firm rolled out a suite of interactive tools, such
as IFRS financial statements, and videos and software. (Nilsen 2008, 85). This may be
manageable for large firms, but it is impracticable to assume that all firms can incur the costs
associated with training staff on IFRS. Firms will more than likely have to invest in software and
online training tools, such as the ones PwC University has employed, for their faculty to utilize.
Not only would firms more than likely have to invest in self-study tools, but they may have to
host workshops and hire IFRS professionals to educate existing professionals. This not only costs
money on the firms part, but it requires a great deal of time on the professionals end. Nilsen
(2008) argues that many firms have already started to weave in IFRS and educate their
employees on IFRS. That may be the case for a few large firms, but that only accounts for a
slight percentage. Majority of existing professionals still need education on IFRS. Educating an
already proficient staff of accountants would take time and money; therefore, it is not a
resistance to change, but a situation in where the benefits do not exceed the costs.
Celeste Martello
Semester Paper
12/7/15
Celeste Martello
Semester Paper
12/7/15
of standards under IFRS would undoubtedly be more lax than standards implemented in the
United States under IFRS.
Political Power Struggles
The degree of enforcement of IFRS will ultimately stem from the political structure of the
country. According to Kothari et al. (2010, 272), The effectiveness of regulation depends on the
effects of regulators political ideologies and the impact of special-interest lobbying on
regulation. Of course, not all countries share similar political ideologies or political structures.
If the United States were to adopt IFRS, it would pose problems for our policy making bodies.
The United States cannot expect to retain the SEC as the primary regulatory agency over
standard-setting if IFRS is adopted. The IFRS has their own body to govern standards, IFRS
are set by the IASB, which acts as an independent supranational standard-setting body appointed
and overseen by the Trustees of the IASC Foundation and the Monitoring Board (Hail et al.
2010, 572). It is unlikely that the IASB will be able to cooperate with national standard setters
because each national body will be reluctant to relinquish power. Hail et al. (2010, 573) supports
this claim, Legislative bodies like the U.S. Congress have an innate resistance to give up power
to a foreign authority or standard-setting body. One of the major concerns from a U.S.
perspective is that foreign governments and interest groups exercise an undue influence on the
IASB and, consequently, the formulation of IFRS. It is apparent that countries, including the
United States, would struggle with the idea of transferring power to a foreign body. This is due to
the fact that every country will have different objectives in standard-setting to push their own
political and economic agenda. A worldwide standard setter is not enough in itself to achieve
comparability because of differences in politics around the globe. The varying political and legal
Celeste Martello
Semester Paper
12/7/15
factors would result in dissimilar standards and financials. Thus, the goal of a worldwide
standard setter is discredited and seems to be more of a utopia than an attainable reality.
Cost Implications
Substantial One-Time Costs
One of the largest arguments in favor of adoption of IFRS, besides comparability across
countries, is cost savings. The common belief related to cost savings from IFRS is that the most
amount of cost will occur during the transition period, but fewer costs will be incurred on an ongoing basis (Hail et al. 2010). In other words, it is argued that the adoption of IFRS will result in
a one-time cost, but in the long-run it would result in cost savings. Multinational firms could
potentially save on reporting costs if a worldwide standard-setter was adopted because the firms
would not have to produce duplicate statements that comply with both IFRS and US GAAP (Hail
et al. 2010). Even if arguments were correct and the adoption ensued in only one-time costs for
firms, those one-time costs would be substantial. One-time transition costs can weigh heavily on
smaller firms (Hail et al. 2010). Based on evidence from the European Unions (EU) transition to
IFRS, Hail et al. (2010) estimates average one-time costs to small firms to be $420,000 and
$3.24 million to large firms. Large firms are in a better position to incur substantial costs, but the
costs that small firms will incur will not exceed the benefit. Selling (2013) points out that small
firms financial statements do not even stack up against large firms statements. Large firms are
more often than small firms preparing financial statements for global companies. Small firms are
less likely to even have the need to report under IFRS; therefore, small firms would incur the
costs associated with the adoption of IFRS but not reap any benefits.
Celeste Martello
Semester Paper
12/7/15
Celeste Martello
Semester Paper
12/7/15
plus the conceivable negative effects from the adoption, are too great to replace the current
standard-setting system. Academic studies have shown that U.S. GAAP produces high quality
standards. Much like the idiom, if its not broke, why fix it? It is wise to be forward thinking in
terms of global comparability, but there are still things in this world that are insurmountable. The
adoption of IFRS in the United States is one of those.
Celeste Martello
Semester Paper
12/7/15
Reference Section
Ball, R., Kothari, S., Robin, A., (2000). The effect of international institutional factors on properties of
accounting earnings. Journal of Accounting & Economics, 29, 151.
Barth, M. (2008). Global financial reporting: Implications for the U.S. academics. The Accounting
Review, 83(5), 1159-1179.
Hail, L., C. Leuz, P. Wysocki. (2010). Global accounting convergence and the potential adoption of IFRS
by the U.S. (Part I): Conceptual underpinnings and economic analysis. Accounting Horizons,
24(3), 355-394.
Hail, L., C. Leuz, P. Wysocki. (2010). Global accounting convergence and the potential adoption of IFRS
by the U.S. (Part II): Political factors and future scenarios for U.S. accounting standards.
Accounting Horizons, 24(4), 567-588.
Kaya, D. and J. Pillhofer. (2013). Potential adoption of IFRS by the United States: A critical view.
Accounting Horizons, 27(2), 271-299.
Kothari, S. P., K. Ramanna, and D. J. Skinner.(2010). Implications for GAAP from an analysis of positive
research in accounting. Journal of Accounting and Economics 50 (2-3): 246286.
Morris, R., S. Gray, J. Pickering, and S. Aisbitt. (2014). Preparers perceptions of the costs and benefits of
IFRS: Evidence from Australias implementation experience. Accounting Horizons, 28(1), 143173.
Nilsen, K. (2008). On the verge of an academic revolution. Journal of Accountancy, 206(6), 82-85.
Selling, T. (2013). Bumps in the road to IFRS adoption: Is a U-Turn possible? Accounting Horizons,
27(1), 155-167.
Zeff, S. (2007). Some obstacles to global financial reporting comparability and convergence at a high
level of quality. The British Accounting Review, 39(4), 290-302.
Celeste Martello
Semester Paper
12/7/15