Accounting Harmonization and Convergence
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International Accounting
1. Cost and Revaluation Models of Accounting
When preparing balance sheets and income statements, companies must account for tangible assets (e.g., buildings, machinery, furniture, and land) and intangible assets (e.g., intellectual property, goodwill, and brand recognition). IAS 16 Property, Plant, and Equipment and IAS 38 Intangible Assets allow the use of two models when accounting for assets: cost model and revaluation model. Consider these two International Accounting Standards, as well as the related U.S. accounting standards. Think about how the revaluation model might impact U.S. accounting if it were adopted. For example, if the U.S. Securities and Exchange Commission (SEC) adopt the use of the International Accounting Standards (including IAS 16 and 38), should they permit companies to use the revaluation model or should they continue to require companies to use the cost model of accounting? With these thoughts in mind discuss a differentiation of the cost and revaluation models of accounting. Evaluate the potential impact of the revaluation model on U.S. accounting. Provide your position for or against the use of revaluation accounting within the United States. Be sure to support your response with references to this week's Learning Resources (half Page).
2. Application: International Harmonization vs. Convergence
The move to establish international accounting standards is not a new development in the accounting field. For decades, standard setting boards have been calling for the need for globalized standards. Initially, efforts were made to establish the international harmonization of standards. However, in more recent years, standard setting boards have moved to establishing the international convergence of accounting standards.
While some literature uses the terms harmonization and convergence interchangeably, the IASB and FASB have assigned distinct meanings to these words. With this in mind, think about the difference between international harmonization and international convergence. Consider why harmonization issues led to the IASB and FASB promoting the convergence of international reporting standards through the production of the conceptual framework. Determine the impact of the convergence of financial reporting standards on multinational companies.
Assignment:
I will a Write a 2- to 3-page paper analyzing the difference between international harmonization and international convergence of financial reporting standards. In your analysis, explain why harmonization issues have led to the IASB and FASB promoting the convergence of international reporting standards through the production of a conceptual framework. Evaluate the impact of the convergence of financial reporting standards on multinational companies.
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Solution Summary
The response provides you a structured explanation of revaluation, accounting harmonization, and accounting convergence . It also gives you the relevant references.
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1. The IFRS provides companies a choice of accounting for property, plant, & equipment under either the historical cost model or the revaluation model. I feel that the revaluation model should not be allowed to be used in the United States. The revaluation model requires companies to re-measure PP&E at fair value and record the change in value of equity. This should not be allowed in the United States because in the United States companies may incorrectly re-measure assets and this can distort the accounts. Further, the revaluation method means higher depreciation and this increases the costs of the companies. After revaluation the cost may not reflect the prices of the assets in the local area. Moreover, revaluation can be very costly and time-consuming. In contrast the historical cost method is based on conservatism, the figures arrived at are objective and provide good decision making information.
2. International harmonization means a movement away from total diversity of practice. Harmony is indicated by a movement away from total diversity of practice. Harmonization of accounting reporting standards means clustering the accounting standards around a few available methods. Harmonization refers to the continuous process of ensuring that GAAP ...
Education
- BSc , University of Calcutta
- MBA, Eastern Institute for Integrated Learning in Management
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