IFRS: Beyond the Standards
Recent accounting research suggests that national culture and language translation may undermine the rigorous interpretation and application of IFRS and lead to a lack of comparability across countries.
by George Tsakumis, et al./Journal of Accountancy
Since the European Union’s 2002 regulation mandating IFRS (International Financial Reporting Standards) for EU public companies and the execution of the Norwalk Agreement by FASB and the International Accounting Standards Board (IASB), momentum has been building for global standards convergence. Currently, more than 100 countries have adopted IFRS, and a number of other economically important countries, including Japan and the United States, have programs in place to converge their national standards with IFRS. IASB Chairman Sir David Tweedie has said that by December 2011, U.S. GAAP (Generally Accepted Accounting Principles) and IFRS “should be pretty much the same.”
At that point, about 150 countries would be using very similar accounting standards, though some countries have adopted versions of IFRS that vary from IFRS as published by the IASB. In 2007 the SEC extended the question beyond mere convergence by accepting the English language version of IFRS by foreign issuers without reconciliation. And in November the SEC released a proposed road map that could require a phased adoption of IFRS by U.S. issuers beginning in 2014, dependent in part on whether seven milestones are achieved. In the road map, which has a comment period ending Feb. 19, it is noted that, “The Commission has long expressed its support for a single set of high-quality global accounting standards as an important means of enhancing comparability.”
This article points out that even among countries that have adopted the same version of IFRS, recent accounting research suggests that two factors — national culture and language translation — could undermine the rigorous interpretation and application of IFRS and lead to a lack of comparability across countries. The objective of this article is to highlight two significant hurdles that impede the consistent interpretation and application of converged standards: the influence of national culture on the interpretation of standards and the difficulty of translating standards into other languages.
This article has been excerpted from the Journal of Accountancy.
Read the full article here.