The International Accounting Standards Board established criteria which public companies should meet when producing their reports. Worldwide, some 90 countries participate in this system. Entities based in the United States are not required to comply with these measures when formulating their output. Most US businesses still use Generally Accepted Accounting Practices, known as GAAP, in their reporting procedures. However, the Securities and Exchange Commission supports the development of a unified code to be used by all signatory countries. This singular set of principles would integrate American models with those mandated in the International Financial Reporting System, or IFRS.
Small companies doing business locally have no need to fulfill the requirements of international reporting mandates. However, any corporation which interacts with foreign entities may benefit from implementing practices with acceptance beyond US borders. American based organizations which operate under the auspices of a body outside the United States must use the broader precepts.
Despite the ongoing effort of the SEC to facilitate a merger between the two systems, many companies resist the notion. In some cases, this reluctance stems from the conviction that the US standards are superior to the international criteria. There are also businesses which do not want to undertake what they deem to be a lengthy, costly procedure.
Although the Securities and Exchange Commission has not dictated that companies switch formats, there are advantages for those make the changeover. Using internationally recognized principles may make it easier to compete with foreign businesses. The standards set down by the International Financial Reporting System are also not as detailed as those used in GAAP.
Many corporations remain unsure about the need to convert their current accounting systems to those based on international standards. In order to make this decision, a wide variety of factors must be considered. Company operations must be examined to see if the criteria apply to them. Taxation and cost issues must also be scrutinized. If a changeover is found to be necessary, short and long term implementation plans must be put in place. While this process is going on, the entity must still comply with its current GAAP obligations.