The IFRS and US GAAP convergence in mergers and acquisitions

Abstract

Until now, it has been fairly difficult to carry out a comparison of the records on business combinations carried out in the USA and the European Union (EU) because business combinations are reported in different ways. The differences result from the partial dissimilarities of the US Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). In 2001, the International Accounting Standards Board (IASB) launched the 'Business Combinations' project, which aims to ensure the international harmonisation and compatibility of the existing US GAAP and IFRS and the coordination of the working programmes for creating new standards and amending the existing standards for the future. This paper focuses on the global harmonisation of accounting reporting in the area of business combinations through Mergers and Acquisitions (M&As). The main objective of this paper is to point out the significant differences in the financial statements of a combining enterprise, which might arise if two different methodological procedures were used to record the business combinations. The paper analyses the main reasons for the harmonisation of the accounting reporting systems in M&As and discusses the approaches of two basic global organisations in the area of regulation of accounting reporting.