Gaap Convergence

A common problem in the world of accounting is the differing set of standards, the U.S. GAAP and the IFRS. It causes both confusion and turmoil when the United States does business with foreign countries. That is why the IASB and FASB have been working towards converging in an attempt to have universal accounting standards. In the year 2002, the IFRS and the U.S. GAAP came to an agreement to officially begin the convergence process. This agreement was officially established in a Memorandum of Understanding known as the Norwalk Agreement. In 2006, the two boards established goals to be reached by 2008, proving that their agreement was quite strong. These goals include things such as improving accounting standards, updating the education of U.S. accountants, and improving upon the structure of the IASB. In 2008, the MoU was updated to put an emphasis on joint projects as a way of producing uniform principles. In 2012, the two boards published a joint progress …show more content…
There are still differences between the two that can tend to cause confusion. One key difference is their conceptual views. The GAAP is very detailed and known as “principle-based” and focuses on literal meaning. The IFRS, however, is more “rule-based.” They operate in a way that focuses on patterns. Another difference between the two is the methods in which they operate. The U.S. GAAP uses the LIFO (last in first out) method on a regular basis whereas the IFRS doesn’t even allow the use of LIFO. The two will most likely have to meet in the middle on this issue. The U.S. GAAP can’t simply get rid of the LIFO method because nearly all U.S. businesses would have to revalue their inventory. One last difference between IFRS and GAAP is their recognition of revenue. GAAP is far more specific because it requires a specific amount of revenue to be reported whereas the IFRS allows unconfirmed revenue to be reported