The Process Towards Global Accounting Standards
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1. Abstract
Financial reporting has experienced one of the biggest revolutions in history with the introduction of International Financial Reporting Standards (IFRS) in over 100 countries across the world. With the U.S. as on of the last big exceptions sticking to their own national GAAP, the IFRS are destined to be the lingua franca of the international accounting world. However, starting with the co-signed Norwalk Agreement in 2002, major efforts between the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have cleared the way towards a convergence between both standards. This paper will throw a light on the process towards a global accounting standard by reviewing its most important steps, determine remaining obstacles, and lastly gives a critical foresight about long-term assets and drawbacks.

2. Introduction
Ten years ago, harmonization of worldwide accounting standards was considered an unachievable, yet worthwhile goal. Today, everyone speaks about “convergence” and it’s only a matter of time till the Securities and Exchange Commission (SEC) will allow, or even require, to report exclusively in IFRS on U.S. stock exchanges – a last barrier towards the victory of IFRS. What has happened?

In 2002, the FASB and the IASB joined forces, pledging to work towards a single set of high-quality global accounting standards by signing the Norwalk Agreement in their historical joint meeting, promising to make their existing financial reporting standards fully compatible as soon as practicable . In 2005, the SEC published a roadmap, containing a timetable to remove the reconciliation of foreign standards to U.S. GAAP on U.S. stock exchanges . In 2007, following a landmark proposal to eliminate the requirement for non-U.S. companies that use IFRS to reconcile to U.S. GAAP raised an important question: If foreign private issuers have the choice to use IFRS, why shouldn’t U.S. companies have the same opportunity?

The next logical step is to consider whether U.S. companies should have the option, or even be required to report in IFRS. Moving from convergence in 2002 to a possible adoption in 2007 would present a historic shift for U.S. capital markets, stoking fear to lose power and hurting national pride by abandoning U.S. GAAP, long held to be the golden (accounting) standard. Additionally, there are still significant differences between both systems. There is a major debate and valid arguments on both sides concerning the further development towards fully harmonized accounting standards. Starting with a review of this process, this paper will compare IFRS and U.S. GAAP and gives critical thought-provoking impulses about the pros and cons of harmonization.

3. Reviewing the Harmonization Process — A Situation Analysis
I. The History of U.S. GAAP
The Generally accepted accounting principles in the United States, commonly abbreviated as U.S. GAAP, are used by publicly-traded and privately-held companies, non-profit organizations, and governments based in the United States or listed at U.S. stock exchanges . Developed by the FASB (Financial Accounting Standards Board), the accounting profession (AICPA) and the SEC (Securities and Exchange Commission), they consist of a massive volume of standards, interpretations, opinions and bulletins. As in many other countries practicing under the common law system, U.S. GAAP is not written in law, but a combination of authoritative standards and the accepted ways of doing accounting using a rules-based approach. Its regulations are based on the concept of investor protection and capital market orientated in consequence of the 1929 stock market crash . Today, U.S. GAAP has been around for nearly 70 years. It is a set of widely-used, comprehensive, well-regarded and well-understood high quality accounting standards. However, recent critics both inside and outside the U.S. questioning its complicated and complex framework, that allowed accounting scandals like Enron to happen .

II. IFRS — The New Global Accounting Standard?
In 2001, the creation of the International Accounting Standards Board (IASB) replaced its forerunner, the International Accounting Standards Committee (IASC), which had been formed in 1973 by an agreement of leading professional accounting bodies in 10 countries (Australia, Canada, France, Germany, Ireland, Japan, Mexico, the Netherlands, the United Kingdom, and the United States). In order to develop a unified set of international accounting standards, the IASC issued so-called International Accounting Standards (IASs) between 1973 and 2000. Since the swap to IASB in 2001, some IASs were amended, some were replaced with new International Reporting Standards (IFRSs), and certain new IFRSs were proposed, on topics for which there was no previous IAS. Through committees, both the IASC and the IASB also have issued Interpretations of Standards .

With the accelerated globalization of capital markets, IFRSs are progressively replacing national GAAP. A 2002 survey by the six largest public accounting companies worldwide highlighted, that of 59 countries surveyed, over 90 percent intend to converge with IFRS . Since then, the IFRS have experienced a broad promotion – an indicator that the IASB is viewed as the appropriate body to develop a global accounting language. The European Council of Ministers gave global convergence a kick-start, when they passed a regulation in 2002, that requires all EU companies listed on a regulated market to prepare accounts in accordance with International Accounting Standards for accounting periods beginning on or after 1 January 2005 . In addition, dozens of non-EU countries, including Australia, Hong Kong, Israel, and New Zealand, are converging their national standards either partially or completely with IFRS. According to IASB Chairman Sir David Tweddie, “[IFRSs] are now used by over 100 countries throughout the world. Within the next five years we expect the accounting standards of major economies such as those of Japan, Canada, China and India to converge with IFRSs .”

III. The Norwalk Agreement — The Cornerstone of Convergence
Clearly 2002 was a memorable year for the process towards a common worldwide approach in accounting standards. In October 2002, following the appointment of former IASB board member Robert H. Herz as chairman of the FASB, the IASB and FASB jointly issued a Memorandum of Understanding known as the “Norwalk

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Lingua Franca Of The International Accounting World And Introduction Of International Financial Reporting Standards. (July 6, 2021). Retrieved from https://www.freeessays.education/lingua-franca-of-the-international-accounting-world-and-introduction-of-international-financial-reporting-standards-essay/