Audit Report Writing Guidelines

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Will IFRS take over the accounting world by 2014?

Throughout the years the globalization of businesses has steadily increased causing a growing acceptance of a generalized set of standards for accountants across the world. In April 2001, the International Accounting Standards Board (IASB) was founded to undertake the responsibilities of the International Accounting Standards Committee (IASC) established in 1973. The IASB is made up of fourteen members representing nine countries, including China, Japan, Australia, and the U.S., and is sponsored by a variety of financial institutions, companies, banks, and accounting firms. In 2002, a year after their establishment, the IASB united with the Financial Accounting Standards Board (FASB) to combine their knowledge and develop a set of high-quality accounting standards that would be compatible with all countries in order to successfully carry out international business affairs and their accounting. This set of global accounting standards is referred to as the International Financial Reporting Standards (IFRS). According to the American Institute of Certified Public Accountants (AICPA), 12,000 companies in 113 countries have already adopted the use of IFRS. The U.S. Securities and Exchange Commission (SEC), one of the primary supporters of developing a set of standards to act as a guideline for financial reporting during transnational offerings, has encouraged the adoption of IFRS in the U.S. On November 14, 2008, the SEC announced that they anticipate the United States will adopt IFRS beginning in 2014, along with the roadmap and objectives which need to be achieved in order to meet the estimated timeline.

GAAP vs. IFRS

Although GAAP and IFRS still cover the same issues and provide guidance for accountants and their financial statements, there are many differences that must be adopted during the conversion process. In International Accounting Reporting Standards (IFRS): An AICPA Backgrounder developed in 2008, the AICPA states that the FASB and the IASB have been working to converge the topics from IFRS to U.S. GAAP in order to diminish any issues aroused by the key differences between the two sets of standards. The AICPA also lists some of the significant differences that still remain during the convergence projects:

• IFRS does not permit Last In First Out (LIFO) as an inventory costing method.
• IFRS uses a single-step method for impairment write-downs rather than the two-step method used in U.S. GAAP, making write-downs more likely.
• IFRS has a different probability threshold and measurement objective for contingencies.
• IFRS does not permit curing debt covenant violations after year-end.
• IFRS guidance regarding revenue recognition is less extensive than GAAP and contains relatively little industry-specific instruction (AICPA, 2008).

The IFRS website (http://www.ifrs.com) also mentions these differences along with what they believe is the leading dissimilarity, “IFRS provides much less overall detail…IFRS fits into one book, about two inches thick. By contrast, U.S. GAAP contains approximately 17,000 pages of detailed rules and guidance” (“IFRS FAQs,” 2008).  The U.S. must discover a way to complete their accounting without all of the extra guidelines given by U.S. GAAP. The FASB and the IASB both hope to resolve most of the major issues before the SEC permits publicly traded companies to apply IFRS to their accounting.

SEC Roadmap

Since 1988, the SEC has played a leading role in international efforts to acquire a staple set of accounting standards. A recurring issue that the SEC has brought up is that “issuers wishing to raise capital in more than one country are faced with the increased compliance costs and inefficiencies of preparing multiple sets of financial statements to comply with different jurisdictional accounting requirements” (AICPA, 2008). They pushed for a set of standards which companies with cross-border affairs could obey. On November 14, 2008, the SEC made a public statement and proposed a roadmap which included fundamental guidelines that are required to be completed by U.S. public companies to progress in the adoption of IFRS. On June 17, 2008, President Obama announced that extensive progress was to be made concerning the development of a global, premium set of accounting standards by the conclusion of 2009 (“IFRS FAQs,” 2008). According to the roadmap, between 2011 and 2012, Canadian, Indian, and Mexican companies are scheduled to adopt IFRS and between 2014 and 2016, large accelerated filers, accelerated filers, and smaller U.S. public companies will be required to switch to IFRS (AICPA, 2008). Although the timeline is possible, it is going to be difficult for companies to switch over so quickly and there will be numerous challenges arising during the process. More people need to be informed about IFRS and accepting of the conversion. The adoption requires educated, open-minded business people who are willing to learn and undertake these challenges.

Adoption of IFRS: Challenges and Opportunities

No matter how small the conversion process, many challenges are bound to arise. In an article titled “Guide to International Financial Reporting Standards,” the Center for Audit Quality mentions some of these challenges. Primarily, funding and staffing the IASB with experts who are confident and can function as an “independent standard-setting body” will be an issue. They also bring up the consistent adoption, application, and regulatory review which is necessary to achieve the “true benefits of a uniform set of accounting standards.” Lastly, the Center for Audit Quality brings up a well-known issue that it will be difficult to completely discontinue GAAP while some still believe that U.S. GAAP is the “true gold standard” for financial reporting (2009).

Obviously, there will also be struggles for anyone dealing with financial documents and the accounting profession. The AICPA stated that all parties involved in financial reporting must undertake comprehensive training, colleges and universities will need to add IFRS into their curriculum for students, professional associations and industry groups will need to include IFRS into all of their programs and materials, and lastly, IFRS will eventually be included in the CPA examination (AICPA, 2008). In an article titled “Using IFRS to Drive Business Development,” found in the Journal of Accountancy, Jefferey and Stephen mention that people can become educated about IFRS from conferences held by the AICPA, the IFRS website, a variety of seminars and books, and from different publications developed by the Big Four accounting firms (Deane & Heilman, 2009).

Aside from the all of the obstacles brought on by IFRS, there will also be a variety of opportunities that arise after the conversion process is complete. Most importantly, IFRS will put the U.S. on the same page as the rest of the world when it comes to financial reporting. This will protect U.S. capital markets, make cross-border investments easier, and encourage U.S. corporations to invest around the world. Financial reporting will also become less complex because of the decrease in standards given that IFRS is principle-based (Center for Audit Quality, 2009). Overall, there are a variety of challenges and opportunities developed by the conversion process; however, without a strong commitment by companies, accountants, and any other person involved in the accounting process, it will be very difficult to meet the SEC’s estimated adoption by 2014.

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audit report writing guidelines
audit report writing guidelines
audit report writing guidelines