Abstract
In this paper, I conduct a review of the IFRS and U.S. GAAP convergence history and the related studies. I first review the history of the early accounting standards harmonization efforts in the Europe Union in the 1970s and 1980s. Next, I discuss the modern convergence efforts as well as the voluntary adoption of the International Accounting Standards (IAS) in the 1990s and early 2000s. I then discuss the concurrent global accounting standards convergence efforts from 2002 to present, including the mandatory IFRS adoption in the EU in 2005 and the convergence between the IFRS and U.S. GAAP. As I review the harmonization and convergence efforts over time, I discuss studies related to each stage of the history. I contribute to the accounting literature by providing a historical review of the IFRS-U.S. GAAP convergence process and relevant studies that can be useful for accounting educators and students, researchers, practitioners, and standards setters.
Highlights
With the rapid adoption of the International Financial Reporting Standards (IFRS) by more than one hundred jurisdictions across the world over the last decade, the U.S is one of the few countries that have not reached a final conclusion
I contribute to the accounting literature by conducting a historical review of the IFRS and U.S GAAP convergence process and the relevant studies, thereby providing insights on the future of IFRS in the U.S The information discussed in this study can be used by accounting educators and students in all levels of financial accounting class so that students can have a quick grasp of the evolution of IFRS
The International Accounting Standards (IAS) played an important role in decreasing the differences in various local accounting standards in the European countries
Summary
With the rapid adoption of the International Financial Reporting Standards (IFRS) by more than one hundred jurisdictions across the world over the last decade, the U.S is one of the few countries that have not reached a final conclusion. The authors examine the convergence of three financial ratios across the three countries: return on equity (ROE), earnings/price (E/P) ratio, and book-to-market (B/M) ratio with the adoption of the directives They evaluate the association between returns and earnings to study the value relevance of reported accounting data. Harris, Lang, and Moller (1994) conduct a similar study to examine the value relevance of the German GAAP and the U.S GAAP for the period prior to and post the implementation of the directives They regress returns on earnings and changes in earnings, and find no difference in the explanatory power between German and U.S GAAP earnings in the pre- and post-implementation periods. The directives are the pilot step towards accounting harmonization, which extends into today’s accounting convergence efforts in the world (Soderstrom & Sun, 2011)
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