The Essay On Acceptance Of International Financial Reporting Standards By The United States Raises Issues.

Introduction and Background

Company boards, executives, and management are investing more and more time and resources on issues of sustainability - such as carbon (greenhouse gas emissions), energy efficient technology, water use, cleantech, and biodiversity, to name just a few. An important part of the global push towards sustainability practices involves a need to account for, and report on, sustainability - sometimes referred to as environmental, social, and governance (ESG) reporting

The International Accounting Standards Board (IASB) has achieved “almost” worldwide acceptance and adoption of its precious and hard-delivered (that is, more than 30 years in the making) “baby”—International Financial Reporting Standards (IFRS), a comprehensive set of financial reporting standards. However, that “almost” is a very significant one: the US, the largest capital market in the world, is still reluctant to fully incorporate IFRS into its financial reporting system, despite the recognition of IFRS on all continents during the last ten years (Bogopolsky, 2015).

Required:
Critically discuss the above statement. Why is the United States still reluctant to fully adopt IFRS for the financial reporting practices? Provide your arguments.

Question 2

At the end of its financial year, Colour Ltd. took the following information from its accounting books of record.

Trial Balance as at 30 June, 2017
  Debit Credit
AUD $ AUD $
Investments 160,000  
Prepaid insurance 80,000  
Plant & Machinery 360,000  
Computers 400,000  
Buildings 580,000  
Accounts Payable   240,000
Accumulated Depreciation – Plant & Machinery   180,000
Accumulated Depreciation - Computers   120,000
Accumulated Depreciation – Buildings   116,000
Bank Loan secured over buildings, due 1st May, 2019   600,000
Share Capital   1,000,000
General Reserve   160,000
Retained Earnings   124,000
Short term Investment - due 30th September, 2017 664,000  
Salaries and wages 320,000  
Heating and lighting expenses 100,000  
Audit fees and charges 40,000  
Interest Expense 30,000  
Damage due to flooding 134,000  
Purchases 1,440,000  
Interim dividend 32,000  
Cash at bank 304,000  
Inventories 460,000  
Accounts Receivable 342,000  
Sales Proceeds   2,866,000
Provision for Doubtful Debts   40,000
  5,446,000 5,446,000

Additional Information

I.Salaries and wages not paid at 30th June amounted to $32,000.

II.Unpaid heating account for June totalled $16,000.

III.Prepaid insurance attributable to current year is 20,000.

IV.Colour Ltd. uses the periodic inventory system. The stock-take of 30th June shows closing inventory of $440,000 (valued at lower of cost and net realisable value).
V.Interest on bank loan is 10% per annum and is payable twice yearly on 31st December and 30th June.  The amount due at 30 June has not been recognised.

VI.Depreciation rates on the straight line basis are as follows:
a.Plant & Machinery                    10%
b.Computers                    5%
c.Buildings                                   5%.

VII.The current market value of marketable securities is $168,000.

VIII.Colour Ltd pays income tax at the rate of 30%.

IX.On 21st May 2017, Colour Ltd was notified of an impending legal suit for $100,000 against the company for breach of contract. The case was settled 15th July 2017.

X.Tax expense was calculated to be $160,000.

XI.A final dividend of 5% of paid-up-capital was declared and approved in 30th June 2017.

XII.Paid Up Capital consists of 500,000 ordinary shares of $2 each.

Required:

1)Prepare necessary adjusting journal entries for the above events .

2)Prepare a single Statement of Comprehensive Income, a Statement of Financial Position (8 Marks) and a Statement of Changes in Equity (5.5 Marks) in accordance with applicable accounting standards for financial year end 30th June 2017.

3) Prepare at least fifteen (15) notes to the financial statements according to the relevant accounting standards.

Issues in acceptance of international financial reporting standards by the United States

An article written by Mr. Alex Bogopolsky concludes that United state is reluctant to the adoption of International financial reporting standards (IFRS) in place of United State generally accepted accounting principles (US GAAP) (Bogopolsky 2015). IFRS are issued by international accounting standards board. Various countries of the world provide their acceptance for the adoption of these standards in place of the standards issued by the country’s accounting standard issuing authority. On the other hand, United States seems to be far away from the acceptance of these standards in place of their US GAAP. This report is written for making a critical analysis or the view explained above in the article of Mr. Alex Bogopolsky.

Benefits to the country come with the adoption of IFRS

IFRS help a country in copping up with the other countries already accepted these standards in helping the investors in making various comparative analyses with the financial statements of the organization. If a united state will adopt the IFRS in place of US GAAP then the country will get following advantages,

1. Adoption of these standards results in more comparability of financial statements. If a country adopts these standards then country’s organization’s financial statement will become comparable to the financial statements of organizations of other countries which already adopted these standards (Hail, Leuz & Wysocki 2010). In the same way, if United States will adopt the IFRS in place of US GAPP then country’s organization’s financial statement will become comparable to the financial statements of organizations of other countries which already adopted these standards.
2. More comparability of financial statements helps in confidence-boosting of the investors regarding the accounting standards and various auditing standards used by the organizations in the country (Parker & Nobes 2012).
3. Multinational companies operating in the country will become free from the preparation of financial reports by following various standards.
4. In present taxation authorities of the country facing trouble in profit calculations regarding the multinational companies operated in the country. This trouble of tax authorities of the country will also reduce by the adoption IFRS in the country. It is expected that the adoption of International standards will result in abolishment of the trouble of tax authorities incurred for calculations of profit earned by such companies in the other countries not following US GAAP.
5. In addition to this adoption will help the countries operated in the country in getting global ratings from the global credit rating agencies.

Costs to the country come with the adoption of International financial reporting standards

There are various advantages of adoption of IFRS for the country like the United States because in this country there are various multinational companies and international investors. However, the country is not in favor of the adoption of IFRS because of some huge costs. Some of them are discussed below,

IFRS are issued and governed by an international body, international accounting standards board. On the other hand, US GAAP is issued by United States security exchange commission. United States security exchange commission is a body under the control of the country and also prepares US GAAP on the basis of own discretion without any international interference. However, adoption of IFRS’s in place of US GAAP’s will inferior the control of the country on the standards on which organization preparing financial statements in the country (Ehoff & Fischer 2013).

In addition to this, the standards for preparation of financial reports will issue and amend by the international accounting standards board i.e. international body and not the United States security exchange commission i.e. country’s internal body.

Adoption of IFRS in place of US GAAP will also create political issues in the country. In addition to this sometimes IFRS may become biased for any country and unfavorable to other. Adoption of IFRS will result in facing such partiality of the international accounting standards board. This also has the possibility of preparation of unfair accounting standards.

The change in accounting standards of a country involves a huge cost for the companies in the country for training purposes of the employees for teaching and making them expert in dealing with the new accounting standards. In the same way, if United States will apply new accounting standards i.e. IFRS in place of US GAAP then companies of the country will face this expense. In addition to this, change in accounting standard to IFRS in place of US GAAP will require huge expenses of the country. As per the estimation United states will need to make expenses of five trillion in the adoption of IFRS in place of US GAAP (Massoud 2009).

Conclusion

Hence this discussion concludes that the US is in favor to have single accounting standards over the globe but not in favor of losing control on the power of formation of accounting standards, making huge expenses and facing political issues. Hence the country is resisting in the adoption of IFRS in place of US GAAP.

Bogopolsky, A 2015, Does IFRS have a future in the US? IFAC, viewed 28 April 2018, <https://www.ifac.org/global-knowledge-gateway/business-reporting/discussion/does-ifrs-have-future-us>.

Ehoff, JC & Fischer, D 2013, 'Why the SEC is delaying adoption of international financial reporting standards.', he International Business & Economics Research Journal, vol 12, no. 2, p. 223.

Hail, L, Leuz, C & Wysocki, P 2010, 'Global Accounting Convergence and the Potential Adoption of IFRS by the United States: An Analysis of Economic and Policy Factors', Accounting Horizons, vol 24, no. 3, pp. 355-394.

Massoud, M 2009, ' The Road to International Financial Reporting Standards (IFRS): Opportunities and Challenges', Claremont McKenna College, Claremont.

Parker, R & Nobes, C 2012, Comparative International Accounting, Pearson Education Limited, Essex, England.