Gaap and Ifrs Convergence

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On the other hand, IASB chairman Hans Hoogervorst feels the recent parting of minds of IASB and FASB on two key issues—financial instruments and leasing—doesn’t equate an untimely end to the pursuit for a unified global accounting language. However, those two standards do exemplify unavoidable differences between the U.S. and the rest of the world that seem to have led to a widespread conclusion that a single correct way of accounting for corporate finance simply does not exist (Sullivan. 2014).

Despite the many setbacks faced and the permanent stall the convergence finds itself in, there have been areas of success that resulted from the effort. Of all the joint projects carried out by the IASB and FASB, the widely regarded crowning achievement of the convergence is the joint standard on revenue recognition, effective for annual reporting periods beginning after December 2016 (Katz, 2014).

Presently, the U.S. GAAP has complex and varied revenue recognition requirements pertaining to specific industries and. As a result, different industries use different accounting for economically similar transactions. The guidance is particularly difficult to maintain over time as markets and industries are always evolving (PwC, 2015). The primary objectives of the new standard are to remove inconsistencies in existing revenue requirements, provide more useful information to users of financial statements through improved disclosure requirements, and improve comparability of revenue recognition practices across entities, industries, and markets customer (FASB, 2014).

The core principle of the new guidance is recognizing revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the organization expects to be entitled in exchange. To accomplish so, the reporting entity is to identify the customer, transaction price, and the performance obligations in the contract. The organization then allocates the transaction price to each performance obligation on the basis of the relative standalone selling price of each distinct good or service stated in the contract. Revenue is then recognized when/as it satisfies a performance obligation by transferring a promised good or service to a customer (FASB, 2014).

Katz, David. (2014, Oct 17). The Split Over Convergence. Retrieved March 9, 2015, from http://ww2.cfo.com/gaap-ifrs/2014/10/split-convergence/

PricewaterhouseCoopers LLP. (n.d.). IFRS and US GAAP: Similarities and Differences (2015). Retrieved March 9, 2015, from http://www.pwc.com/

Sullivan, Mark. (2014, March 4). The Rise and Stall the U.S. GAAP and IFRS Convergence Movement. Retrieved March 9, 2015, from http://insurancenewsnet.com/oarticle/The-Rise-and-Stall-the-US-GAAP-and-IFRS-Convergence-Movement-a-468950

Financial Accounting Standards Board. (2014, May 28). Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606). Retrieved March 9, 2015, from http://www.fasb.org/cs/ContentServer?c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176164075187