Title: Analyzing Financial Statements after Converging International Financial Reporting Standards and Us Financial Accounting Standards for Publicly Traded Companies in the USA
Abstract: INTRODUCTION The desirability of accounting harmonization across countries and continents has been discussed and debated for many years. The potential benefits and costs of accounting harmonization have been debated with equal zest. The evidence is equally lacking of conclusion one way or other. Bae et. al (2008) suggest Generally Accepted Accounting Principles (GAAP) differences are associated with economic costs for financial analysts. Ball et. al (2003) suggest that there is little if any empirical evidence of the existence of magnitude of the benefits form or costs imposed by differences in accounting standards around the world. It seems to defy common understanding that there would not be benefits and costs savings of accounting harmonization across countries and continents for firms and financial analysts. Often heard arguments from the proponents of accounting harmonization include expectations that harmonization helps reduce information asymmetries, lowers the cost of capital, and increase capital flow across borders. The EU parliament approval of regulation in 2005 requiring EU-registered companies to adopt International Financial Reporting Standards (IFRS) taking full effect in 2009 and the Securities and Exchange Commission (SEC) announcement that it will accept financial statements prepared accordance with the IFRS from foreign filers in the U.S.A. without reconciliation to the GAAP commencing 2007. This paper is an attempt to describe some issues facing financial analysts following the convergence. The paper further is an attempt to quantify how the implementation of these changes affects certain financial ratios used by financial analysts internationally in analyzing non-financial firms. Assessment of the effects of harmonized financial statements of accounting standards on both investors and analysts is likely to offer valuable insight how investment decisions are made. Investment decisions by investors may well be of greater economic importance than analysts' forecasts and recommendations. However, investors have arguably more sources for information to formulate investment strategies, but analysts almost invariably utilize financial statements when formulating forecasts and recommendations. The next section describes the pertinent developments toward harmonization of accounting standards during the last decade. BRIEF HISTORY Six major international organizations have been key players in setting international accounting standards and in promoting harmonization of international accounting standards: IASB, EU, IOSCO (International Organization of Securities Commission, IFAC (International Federation of Accountants), United Nations Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR). ISAR is part of the United Nations Conference on Trade and Development (UNCTAD), and OECD working Group (Organization for Economic Cooperation and Development Working Group on Accounting Standards. The international effort in harmonizing accounting standards formally began in 1973 with the establishment of the International Accounting Standards Committee (IASC). In April 2001 the International Accounting Standards Board (IASB) is established as the successor organization to the IASC. The IASB's mandate is to develop International Financial Reporting Standards (IFRS). In 2002 the IASB and the Financial Accounting Standards Board (FASB) issue the Norwalk Agreement, acknowledging their joint commitment to developing high quality, compatible accounting standards that could be used for both domestic and cross-border financial reporting. The Australian Accounting Standards Board announced in 2004 its intent to adopt the IFRS as the Australian accounting standard. In 2005 the chief accountant of the SEC releases a roadmap allowing in principle IFRS filings without GAAP reconciliation for foreign filers firms no later than 2009. Also, in 2005 the Chinese Ministry of Finance committed to converging the Chinese Accounting Standards to the IFRS within two years. …
Publication Year: 2011
Publication Date: 2011-04-01
Language: en
Type: article
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Cited By Count: 4
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