Accounting Standards: USA vs. World (rest of the)

Convergence is the name of the game for standards in many industries, and the Accounting industry is no different.

Up till now, different countries around the world have had their own accounting standards, reflecting an introspective view of the world. As economies around the world focus more on globalization, the ability to understand financial information from different countries has taken on a greater significance.

GAAP (Generally Accepted Accounting Principles) are the standards by which accountants prepare financial information. GAAP is converging, and is on the road to being one GAAP worldwide.

IFRS (International Financial Reporting Standards) is the global accounting standard that is being accepted in more and more countries around the world. Europe integrated their standard to IFRS in 2005. Canada is set to accept IFRS to replace their accounting standards in 2011, and other countries around the world, including Japan and India, are getting with the program.

The major holdout, no surprise, is the USA.

However, something shocking happened a few weeks ago. The SEC (Securities and Exchange Commission) in the United States said that they will accept IFRS reporting for foreign private issuers (public companies from outside of the USA listed in the USA).

Not only that, but the FASB (the US Accounting Standards Board) and the IASB (makers of IFRS), are working jointly on some projects of significance, ensuring that some standards will be the same worldwide.

As Canada is getting ready for IFRS for 2011, we are too. Some of our clients are hiring right now for this convergence project. We are talking about IFRS, and are presenting at conferences across Canada in 2008 - We presented earlier this week in Toronto.

You may be asking yourself (or me) “who cares”. And that’s fair. GAAP isn’t an exciting topic (at least it is not supposed to be). Accountants care. Their world is converging.

Is this a good thing? I think so, because I’m a believer in the positive impact of economic globalization. More convergence on standards means less confusion on understanding others financial information. And this small part can assist in growing global economic health, which in the end makes the world a better place.