International Financial Reporting Standards was developed by
the International Accounting Standards Board in 2003 to provide a global framework
for financial and legal standards. According to Ramin and Reiman, authors of IFRS
and XBRL, IFRS would become a “set of high-quality, understandable, enforceable
and globally accepted financial reporting standards” (2013, p. 15). Having one
set of globally accepted standards is becoming increasingly important as the
financial world grows ever more complex and integrated. During an IFRS panel discussion
on January 23, 2013, the dominant theme across the panel was the need to adopt a
globally accepted, consistent set of high-quality standards based on accounting
principles, to enable companies to provide vital information to all
stakeholders involved that does not require reconciliation or translation into
local standards.
The European Union (EU) adopted the requirement of IFRS for
all publicly traded entities in 2005 and today 150 countries currently require
the application of IFRS in their financial reporting. (Ramin & Reiman, 2013) The SEC adopted the
use of IFRS for non-domestic entities and continues to encourage the convergence
of US GAAP with IFRS by require a phase-in requirement of all domestic publically
traded entities to adopt the use IFRS for their financial reports complete by
2014. (Securities and Exhange Commission, 2010) However, the reconciliation
to US GAAP can be very technical and complicated for some categories such as
derivatives, leases and inventory and requirements for disclosures vary greatly
between the two standards and with US legislation. (Ramin & Reiman, 2013)
US GAAP is a rule based set of standards that consists of
more than 17,000 pages where IFRS is a true standards based with around 3,500
pages. The IFRS for SME: Illustrative Financial Statements and Disclosure
Checklist is only 65 pages long and provides complete guidance for completing a
required financial reports. This standard requires only a single set of
comprehensive income and retained earnings report, simplifying the reporting
process. (International Accounting Standards Board, 2009) This illustrates the
differences in the two reporting standards. The reconciliation process enables
a subset of stakeholders the ability to compare information, however the
differences in the two standards still prove problematic for taxation,
legislation, disclosures, internal controls systems and contracts requiring the
use and codification of US GAAP reports. (Ramin & Reiman, 2013) Because of the significant
differences in the two systems could potentially require companies will have to use dual systems for
both US GAAP and IFRS to maintain compliance with certain stakeholders,
contracts and the IRS while complying with the SEC and global stakeholders. (Gray & Fogarty, 2010)
Adapting and converging the two standards will take time and
will be aided by the use of technology. Implementing a universal taxonomy would
provide stability while customization would provide global adaptability. The
programming language adapted from XML, eXtensible Business Reporting Language (XBRL)
could provide the vehicle for this consistency. XBRL would allow the adoption
of IFRS taxonomy and customization for local taxonomies and USXBRL for US GAAP
to provide stakeholders the ability to sort and analyze data from multiple
standards. The SEC is requiring all publically traded companies to adopt XBRL
for their financial statement tagging by the end of October 2014 to facilitate the
convergence of US GAAP and IFRS as part of their Roadmap. (Brand, 2012)
XBRL also facilitates accuracy and consistency, reducing time and data entry error,
streamlines and automates data sharing and encourages data sharing through
social analytics. (Rosivach, 2012) Ultimately, the use of XBRL will be vital in the convergence of US GAAP and IFRS.
Works Cited
Brand, K. (2012, February 17). U.S. Federal
Government XBRL Reporting Update. Retrieved from Regis University CPS
Blog: http://cps.regis.edu/blog/u-s-federal-government-xbrl-reporting-update/
Gray, L., & Fogarty, M. (2010, February 09). Is
IFRS Good for America? Retrieved from Eisner Amper Accountants and
Advisors:
http://www.eisneramper.com/IFRS-International-Financial-Reporting-0210.aspx
International Accounting Standards Board. (2009). IFRS
for SME: Illustrative Financial Statements and Presentation and Disclosure
Checklist. London: IASCF.
Ramin, K., & Reiman, C. (2013). IFRS and XBRL:
How to improve Business Reporting through Technology and Object Tracking.
John Wiley & Sons, Ltd.
Rosivach, A. (2012, January 31). Governments and
Private Companies Exploring Benefits of XBRL. Retrieved from Accounting
Web:
http://www.accountingweb.com/topic/technology/governments-and-private-companies-exploring-benefits-xbrl
Securities and Exhange Commission. (2010). Commission
Statement in Support of Convergence and Global Accounting Standards.
RELEASE NOS. 33-9109; 34-61578 .http://www.sec.gov/rules/other/2010/33-9109.pdf
References
Before we can understand XBRL, we have to understand why it's needed. Great job explaining the two standards, their history, and their importance.
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