For more than a century, financial accounting has followed many paths throughout the world. Each country established its own standard-setting body to codify' generally accepted accounting principles (GAAP) for entities operating in that country. These GAAP developed according to the country’s characteristics, such as the following:
■ Legal regime (e.g., common law in Canada and U.S. versus code law in France);
■ Tax laws (i.e., whether taxable income is based on accounting income); and
■ Litigiousness (e.g., U.S. is more litigious than most other countries).
For example, U.S. GAAP tends to Ire more detailed or “rules-based” because such detail helps lawyers to make a claim of misrepresentation or to defend against such a claim in court.
Over the past decade, the world has steadily marched toward a uniform set of accounting standards across the globe. The biggest move occurred in 2005, when the European Union required publicly traded firms in member countries to use International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) based in London, UK. Canadian companies that are publicly accountable are also required to apply IFRS after January 1, 2011. The United States, with the biggest capital market in the world, is also considering following rules issued by the Financial Accounting Standards Board (FASB) to using IFRS.
Required:
Evaluate die merits (both for and against) of having one set of financial accounting standards across the world.