Will there be one set of accounting standards in use throughout the world in the next five years?
Although there has been much talk about the eventual standardization of all accounting methods into one complete set of accounting principles, the truth is that there are several obstacles that currently prevent one full compilation. US GAAP and IFRS are two of the leading accounting methods in the world and the majority of their pronouncements are very similar when compared by concept. However there are several treatments upon which they differ.
When it comes to the treatment of inventory US GAAP allows for both the FIFO and LIFO methods to be used provided that they are accounted for consistently or provide sufficient reason for change. IFRS however strictly prohibits the use of LIFO and only recognizes the accounting for cost of goods sold on the FIFO or weighted average cost basis. This really is a very big stumbling block on the path to convergence because of the immense tax advantages enjoyed by US GAAP adhering companies.
There is also the matter of asset impairment which under IFRS allows companies to write down the value of an impaired asset in one period and then write up its value in a future period given that it meets certain criteria. US GAAP on the other hand only allows for the write down of an asset and prohibits its revaluation in the future.
Although the majority of the world uses IFRS it is still a relatively new accounting method and therefore lacks much of the detailed industry specific guidelines that have been established in GAAP. Additionally IFRS has less clear standards on the timing of revenue recognition as well as flexibility on companies’ decisions to report contingent liabilities. I believe that given the United States’ increased focus on anti-fraud, transparency, and accountability the implementation of IFRS is something that it will