Thursday, November 27, 2008

Advantages/Disadvantages of IFRS.

There are many reasons why companies are choosing to migrate towards adopting IFRS before they become mandatory. One of the most important reasons is due to globalization, as most countries have already made the switch over to IFRS. If companies in the US switched over to IFRS it would make transactions and deals with companies who operate under IFRS much easier. It would also give companies and stockholders in other countries a better economic indicator as to how companies here in the US are doing.

Another advantage with IFRS is clarity and productivity. Under IFRS, financial makers use their own professional judgment as to how to handle a specific transaction. This will lead to less time being spent trying to follow all the rules/complications that are coupled with rules-based accounting. It will also allow prepares of financial information to keep statement in a simplistic and understandable forms for investors and other companies interested in said companies financial statements.

A big disadvantage about companies in the US adopting IFRS is that current and future accountants will have to relearn how to do their jobs. This doesn't seem like much of a problem but its definitely something to consider. If companies are willing to pay for their accountants to go back to school they will be incurring more cost. US companies are also bound to see declines in profits during the first years when they switch to IFRS as their accountants will still be learning how to prepare financial statements under IFRS.

The switch over to IFRS may be a difficult one but in the end it will provide more understandable financial statements and will lead to true economic status. It would also make dealing with international companies much smoother, globalization in other words.

-Frank.

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