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Should International Financial Reporting Standards Replace U.S. GAAP?
To be useful and timely, financial information must also be reliable, comparable, consistent, and transparent. One way to achieve transparency in financial reporting is to prepare information in accordance with a robust, highquality set of generally accepted accounting principles. In a global marketplace, a set of financial statements having been prepared using the accounting standards of one country does not necessarily mean that they will be comparable to those in another country. Moreover, accounting measurements used in one country's generally accepted accounting principles might not be used by, or might be unfamiliar to, users in another country.
If financial statements could be prepared using one set of universally accepted accounting standards, then their understanding could be extended to myriad users in different countries. The quest to acquire such a set of standards is behind the International Financial Reporting Standards (IFRS) promulgated by the International Accounting Standards Board (IASB). IFRS is making an impact on the international scene; it has been endorsed by the International Organization of securities Commissions (IOSCO) and mandated for consolidated financial reporting in the European Union (EU). Despite IFRS's international acceptance, the issue is whether it should be substituted for U.S. GAAP in the U.S. or used in conjunction with U.S. GAAP.
Historical Background
Years of effort toward international accounting harmonization have culminated in the promulgation of accounting standards by the International Accounting Standards Committee (IASC) and auditing standards by the International Federation of Accountants (IFAC). Other organizations, such as the United Nations, the EU, and the G4+1, had pursued initiatives toward global accounting standards setting. (The G4+1 comprises members of national standards-setting bodies from Australia, Canada, New Zealand, the United Kingdom, and the United States, and observer representatives from the IASC.) These organizations are no longer involved, however, because the IASC has succeeded in becoming the sole setter of global accounting standards.
In 1997, the IASC deemed it necessary to change its structure so as to, in its own words, "bring about convergence between national accounting standards and practices and high-quality global accounting standards." A new constitution was drawn up, and in July 2000 the IASC was renamed the International Accounting Standards Board (IASB). In April 2001, the IASB assumed the responsibility...