GAAP and IFRS: International accounting standards shape accounting education

Accounting booksAs the U.S. moves closer to the adoption of international accounting standards, the debate over the use of Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS) for financial reporting continues. But, whatever the U.S. decides, the fact remains that the widespread use of international accounting standards will require changes in the curriculum of accounting education.

The language of business

Most of the world’s nations do not use the same reporting standards that are used in the U.S. Whereas in the U.S, a system known as Generally Accepted Accounting Principles (GAAP) is used, other nations such as those in the European Union (EU) and Asian nations, including Japan and India, use International Financial Reporting Standards (IFRS) for their financial reporting. Large corporations that operate both in the U.S. and in other countries must prepare financial statements using both reporting standards.

Review curriculum choices

Students who are taking accounting courses would be advised to make sure that their curriculum includes training in these international standards. This point was emphasized in a June 2010 article for The CPA Journal titled, “Global Accounting Standards: Shooting the Rapids,” which is a transcript of remarks by Tom Jones, former vice chairman of the International Accounting Standards Board (IASB) and director of the Center for the Study of International Accounting Standards at the Lubin School of Business at Pace University.

Regarding the inclusion of GAAP and IFRS in accounting education Jones said, “We ought to be teaching both, but we probably ought to be emphasizing international standards. We’ve been doing that at Pace for quite a few years, and I’m trying to step that up because I think it’s quite important. We have overseas students coming to study accounting in the U.S. and learning U.S. GAAP, and when they go back home, they’re not going to be touching U.S. GAAP.”

From GAAP to IFRS

Currently, about 120 nations use IFRS for their financial reporting. IFRS accounting standards are developed by the IASB, an independent body consisting to members from nine countries, including the U.S.

In November 2008, the SEC presented their “Roadmap” for the adoption of IFRS by companies in the U.S. The Roadmap outlined seven areas that would be addressed in considering the adoption of IFRS and set 2011 as the year for a final decision by the SEC.

Although the 2011 deadline has passed, the SEC has maintained its support of moving toward IFRS adoption. According to the SEC, the earliest date for the mandatory adoption of IFRS in the U.S. is 2015.

Professor David Albrecht voiced his opinions on IFRS and how accounting education must adapt in his November 26, 2008 post to The Summa titled, “Accounting Education Under IFRS.”

Though a critic of IFRS, Professor Albrecht suggested that accounting educators should embrace IFRS. “I think that a defensible IFRS approach in the classroom is to expand Intermediate Accounting to three semesters. All the existing rules still need to be taught, including many alternatives not previously taught. Then, financial reporting planning and strategy needs to be taught,” Albrecht said.

Benefits of international standards

Globalization is a business environment where corporations cross international borders in their operations. Currently a company is required to compile financial information about its operations based on the rules that apply in each locality in which it operates. This requirement increases the cost of doing business. A company that operates in both Europe and the U.S., for example, will spend millions of dollars in preparing financial statements that adhere to GAAP in addition to the costs of preparing statements under IFRS.

Curriculum challenges

The challenge of including IFRS as well as GAAP principles into the accounting curriculum falls largely on the shoulders of accounting faculty according to Michael Meier in his March 30, 2011 post for the New Jersey Society of Certified Public Accountants blog NJSCPA titled, “IFRS In the Classroom.

“Whatever the case, students and educators must become more aware of these changes and show a greater sense of urgency as we become a more globalized business community. As time progresses, audit recruiters are going to pursue candidates with a greater knowledge of international standards, and in order for U.S. students to not get left behind we must learn these new methods. Whether we are prepared or not, IFRS is coming to the United States — and soon,” Meier said.

Posted in Accounting | Tagged , , , | 5 Comments

5 Responses to GAAP and IFRS: International accounting standards shape accounting education

  1. raid salman says:

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  2. raid salman says:

    if you dont mind to help me with my subject ,,audit strategies,, i shall great full with you.

  3. Philip Adoyo says:

    The information posted here is very constructive.
    I would wish to add that a uniform reporting standard would be good for accounting practitioners, both in the preparation of financial statements and for those of us who teach Accounting at the professional -academic – level.
    Inasmuch as GAAPs are not contradictory per se the students require a uniform standard for their growth and practice once they go to the field.
    Philip

  4. Claire Moore says:

    Philip
    Thanks for the information.

    Raid, I don’t do any tutoring for students but if you are taking a college course then your school may have tutors available to you. Also be sure to ask your teacher for assistance.

    Claire

  5. Airon says:

    Thank you. It is a very informative article.

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