Tutorial 5 Answers

Tutorial 5 Answers - Tutorial 5 4.2 One notable exception...

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Tutorial 5 4.2 One notable exception to the global adoption of IFRS is the United States. Given that the US represents the world's major capital market, the non- involvement of the US represents a significant limitation in the global acceptance of IFRS. The US appeared very strong in its resolve not to adopt IFRS believing that its 'rules-based' standards were superior to the more 'principles-based' standards of the IASB. However this resolve to retain their own standards (and to reject IFRS) appeared to diminish around 2001/2002 with various 'accounting scandals' involving organisations such as Enron. In terms of whether the US will adopt IFRS in the near future , there is currently a process being undertaken jointly by the IASB and the FASB (called the "Convergence Project") which is seeking to converge the two sets of standards thereby paving the way for the US ultimately switching to IFRS . However, at this point in time it would appear that the US adoption of IFRS for use by US companies appears a number of years away. The adoption of IFRS will be contingent ultimately on whether the SEC and FASB are satisfied with the results generated by the IASB/FASB Convergence Project (and whether some of the other concerns identified in part (b) below are addressed). Nevertheless, from late 2007 the SEC adopted rules that permitted foreign private issuers (but not US domestic companies) to lodge, with the SEC, their financial statements prepared In accordance with IFRS without the need to provide a reconciliation to generally accepted accounting principles (GAAP) as used in the United States. In 2007 the Financial Accounting Foundation (the organisation with responsibility for the oversight, administration, and finances of the FASB) made a submission to the SEC stating that whilst the FAF considered that the ultimate adoption of IFRS within the US is a sound idea, the adoption should not, in their opinion, happen for a number of years to give enough time for IFRS to be further improved and for the US reporting systems to be properly prepared for the transition to IFRS. Hence, whilst we cannot be sure, it would seem that the US adoption of IFRS will not happen to at least 2012 or maybe some time later.
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In terms of some of the factors that might discourage the US from adopting IFRS one obvious factor is that the FASB, FAF and SEC must be satisfied that the convergence project has lead to accounting standards that are appropriate to the US context. In 2007 the FAF also raised concerns about the perceived independence of the IASB and they argued that before the US adopts IFRS (which we know emanate from the IASB), certain changes need to be made to the governance policies of the IASB. The FAF was also concerned that in many jurisdictions there are amendments being made to IFRS at a local level before the standards are used in that particular country. This will also need to be addressed. 4.3Chapter 4 has provided a number of factors which have been suggested to
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Tutorial 5 Answers - Tutorial 5 4.2 One notable exception...

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