Investors rely on comparative and accurate financial statements in order to make educated decisions regarding their investments. Accounting standards are the foundation of this comparability between companies. In short, accounting standards are codes that guide the preparation and presentation of financial statements as well as the measurement and disclosure of accounting transactions. All businesses are required to follow certain standards, which result in the harmonization of accounting practices across all companies and, in turn, the enhancement of an investor’s ability to make educated decisions. These standards are not consistent across borders for various reasons, culture being a large factor. Some countries following rules-based and others follow principles-based systems. There are two prominent methods are the United States Generally Accepted Accounting Principles (U.S. GAAP) and the International Financial Reporting Standards (IFRS). As the world experiences globalization, businesses expand their markets across borders and investors look to invest in international companies. This new global mindset and the need for more consistent accounting practices around the world fuels the need for one global set of accounting standards. This composition will serve as an objective analysis on accounting standards: what they are, where they are used, and how they are affected by culture. It will explore the potential convergence of U.S. GAAP and IFRS: the history of the discussion as well as the effects it may have if implemented. Additionally, I will note my opinion regarding convergence.
Dancz, Leah Michelle, "Accounting Standards and Convergence" (2014). Honors Projects. 353.