Transition to IFRS: Inception to Implementation in the United States
In an effort to simplify the ability of United States based businesses to operate in the international world of business by providing comparable, transparent financial statements for both foreign and domestic investors alike, the Securities and Exchange Commission (SEC) is moving towards adoption of International Financial Reporting Standards (IFRS) or the convergence of IFRS with U.S. Generally Accepted Accounting Principles (GAAP). While this potential change could increase the accessibility to foreign capital markets, the transition would also pose many serious and complicated challenges to the companies currently complying with U.S. GAAP. This paper will look generally at the history of how U.S. GAAP and IFRS arrived at this crossroads, how it will affect the U.S. business community at large, and then more specifically at a few of the challenges facing a publicly traded energy company during this transition. It will focus on key areas most greatly affected by these new standards and present an in-depth look at how this possible change in accounting rules could affect their treatment of fixed assets, intangible assets, income taxes, deferred taxes, and the consolidation of partiallyowned entities. The resulting consequences to the company’s financial position on paper will also be considered. Comparing and contrasting these two different reporting methods may reveal the subsequent impact this proposed change could have for this U.S. based energy company.