Effect of Accounting`s Perfect Storm Question a

The accounting’s perfect storm describes a combination of three
elements, which have the potential of altering dramatically the
financial reporting of both non-public and public companies. The three
elements entail: the adoption of International Financial Reporting
Standards (IFRS) by public companies the introduction of major GAAP
revisions to private companies and reformatting of financial statements.
Different agencies are responsible for driving each initiative
(O’Brien 2). The adoption of the IFRS is the responsibility of the
Securities and Exchange Commission (SEC) while the driving of GAAP
revisions is the responsibility of the American Institute of CPAs
(AICPA) and the Financial Accounting Foundation (FAF). On the other
hand, the Financial Accounting Standards Board (FASB) has the
responsibility of reformatting financial statements.
A public company adopting to the IFRS changes will be necessary since
the adoption comes with benefits. This will be necessary for a public
company to adopt the IFRS in order to be capable of presenting its
financial statements as other foreign competitors (O’Brien 6).
Presenting financial statements as other foreign companies is vital for
a public company since it can easily compare its performance with other
foreign companies. Besides, companies having subsidiaries in countries
that allow IFRSwill be capable of using one accounting language
throughout the company (Kirk 32). It will also be necessary for a public
company to convert to IFRS in case it is a subsidiary of a foreign
country, which must use IFRS, or if it has a foreign investor which must
use IFRS (O’Brien 7). In addition, because of the growing need of
companies to invest abroad, it will be necessary for companies to adopt
the IFRS. Therefore, it is exceedingly vital for companies to adopt to
the IFRS.
It is necessary to drive the GAAP revisions since it would simplify the
financial reporting for private companies. Through following GAAP the
reporting of some financial processes takes a long process however,
with the revisions to GAAP, it will be feasible to shorten the processes
leading to the simplification of financial reporting. It will also be
necessary to consider GAAP revisions since it will lead to cutting of
costs especially for corporations that are multinational. Most
multinationals using GAAP are usually required to file using multiple
systems however, with the revision of GAAP, such multinationals may be
required to file only under one system. This will help in mitigating
costs for the multinationals. In addition, it will be necessary to drive
the GAAP revisions in order to make financial accounting reporting
process become more efficient (O’Brien 9). This emanates from the
elimination of accounting processes that may not be recognized as
efficient.
Although the accounting’s perfect storm suggests reformatting of the
financial statements, it does not seem necessary to do so. According to
the proposed changes, the balance sheet, income statement and the
statement of cash flows reclassify liabilities, revenues, assets and
expenses into investing, financing and operating categories. Besides,
fresh terms such as business income and business assets appear. In
addition, the balance sheet becomes established as the statement of
financial position while the income statement is established as the
statement of comprehensive income. Furthermore, there is a proposal of
abandoning the indirect technique of preparing operating cash flows.
This reformatting is not necessary since it does not have any benefit or
change to the financial statements. If adopting the change could be of
an advantage to the financial reporting, then it could be deemed
necessary however, it is not advantageous and thus not necessary.
Question b
The changes brought about by the accounting’s perfect storm are likely
to affect the careers of financial statement preparers, Certified Public
Accountants, and auditors. The careers of these experts will be affected
since they will require to familiarize themselves with the proposed
changes in the financial reporting. For example, the adoption of IFRS
will require the professionals to learn what accounting aspect is added
or eliminated by adopting the IFRS. This implies that the accounting
experts have to attend extra classes in order to familiarize themselves
with the changes. Other experts engaged in the management in the
measurement of certain liabilities and assets, such as valuation and
actuaries experts, will require to undertake a comprehensive training
because they do not learn IFRS. Besides, the changes will affect the
accounting career since I will have to understand how the financial
statements differ, when prepared using the GAAP, IFRS and revised GAAP.
This will be crucial so as to be prepared to work in any accounting
environment.
Conclusion
The accounting’s perfect storm refers to a combination of three
elements that have the probability of altering the financial reporting
of both non-public and public companies. The three elements include: the
adoption of International Financial Reporting Standards (IFRS) by public
companies the introduction of major GAAP revisions to private companies
and reformatting of financial statements. The changes emanating from the
first two elements is deemed necessary since they have some benefits
however, reformatting of financial statements is not necessary since
does not seem to affect the financial reporting.
Works Cited
O’Brien, F.Williams. Accounting’s Perfect Storm. Santa Clara
Executive Education, Inc. Print.
Kirk, Robert. Ifrs: A Quick Reference Guide. Oxford: CIMA, 2009. Print.
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