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C O N V E R G E N C E C O R N E R

Most agree that there is a need for one set of international accounting standards. Here is why:Multinational corporations. Today companies view the entire world as their market. For example, Coca-Cola,

Intel, and McDonalds generate more than 50 percent of their sales outside the United States, and many foreign

companies find their largest market to be the United States.

Mergers and acquisitions. The mergers that led to international giants DaimlerChrysler and Vodafone/Mannesmann

suggest that we will see even more such mergers in the future.

Information technology. As communication barriers continue to topple through advances in technology, compa-

nies and individuals in different countries and markets are becoming comfortable buying and selling goods and

services from one another.

Financial markets. Financial markets are some of the most significant international markets today. Whether it is

currency, equity securities (stocks), bonds, or derivatives, there are active markets throughout the world trading

these types of instruments.

Both the IASB and the FASB are hard at work developing standards that will lead to the elimination of major differ-ences in the way certain transactions are accounted for and reported. In fact, the IASB has stated that no new major

standards will become effective until 2009. The major reason for this policy is to provide companies time to translate

and implement iGAAP into practice.

The international standard-setting environment is changing rapidly. The task will not be easy, but conditions are

conducive to convergence. As Mary Barth, a member of the IASB noted, There is still a lot to do, but I would never

have dreamed we would be working as closely with the FASB as we do today.

R E L E V A N T F A C T S

O N T H E H O R I Z O N

A B O U T T H E N U M B E R S

The IASB is a relatively new organization (formed in 2001). As a result,

it has looked to the United States to determine the structure it should

follow in establishing iGAAP. Thus, the standard-setting structure

internationally is very similar to the standard-setting structure in the

United States.Presented below is a chart of the international standard

setting structure.

iGAAP includes the standards, referred to as Inter-

national Financial Reporting Standards (IFRS), devel-

oped by the IASB. The predecessor to the IASB issued

International Accounting Standards (IAS). Both IFRS

and IAS are considered iGAAP.

The fact that there are differences between U.S.

GAAP and iGAAP should not be surprising because

standard setters have developed standards in

response to different user needs. In some countries,

the primary users of financial statements are private

investors; in others, the primary users are taxauthorities or central government planners. In the

United States, investors and creditors have driven

accounting-standard formulation.

iGAAP tends to be simpler and less stringent in its

accounting and disclosure requirements. U.S. GAAP is

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more detailed. This difference in approach has resulted in a debate about the merits of principle-based versus rule-based standards.

Regulators have stated that by 2009 they want to eliminate the need for foreign companies that trade sharees in U.S. markets

to reconcile their accounting with U.S. GAAP.

International Financial Reporting

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