The following essay examines the accounting areas as the promulgation o the International Auditing Standards (ISAs), the convergence of GAAP and GAAS, the position of the U.S as far as the convergence is concerned, the challenges that are experienced in the convergence process, and the attitude of the current U.S auditing setting bodies i.e. the ASB and PCAOB.
There have been tremendous changes in the auditing profession as a result of growing accountability expectations from the public coupled with technological advances and economic complexities in many business organizations. In the past, the auditing profession has been confronted with several challenges leading the public to lose confidence with regards to the auditing profession and hence the need to rethink the most fundamental auditing practices and principles to bring about efficiency and restore public confidence.
International Accounting Standards (ISAs) Promulgation
The International Accounting Standards refers to laid down accounting standards that are issued and regulated by International Accounting Standards Board. International Accounting Standards are also referred to as International Financial Reporting Standards and this depends on the country where they are published for instance IFRS are applied in such nations such as Russia, Hong Kong and other European countries. In U.S however, the accounting standards that are applied are referred to as the US Generally Accepted Accounting Principles (Schroeder & Cathey, 1).
On the other hand, the International Standards on Auditing refers to the professional standards that guide the financial audit performance. The standards are issued by the International Federation of Accountants i.e. IFAC through International Auditing and Assurance Standards Board commonly referred to as IAASB.The Statements on Auditing Standards in the United States provide the external auditors with guidance on the generally accepted auditing standards as far as report issuance and non-public auditing are concerned. The guidelines also provide auditors with consistency, accuracy and verifiability of the auditor’s reports and actions.
They are promulgated by Auditing Standards Board and the American Institute of Certified Public Accountants commonly referred to as AICPA serves as the oversight body. The Auditing Standards Board formulates interprets and revises the Generally Accepted Auditing Standards Board. They thus issue the authoritative pronouncements on auditing known as Statements on Auditing Standards. (Nikolai, 1).
Roadmap towards convergence of GAAP and GAAS
The convergence of GAAP and GAAS is the main agenda as far as changes in the auditing and accounting profession are concerned and so in order to continue enhancing comparability, consistency as well as the efficiency with regards to global market, both the FASB and IASB which are they financial bodies of GAAP and GAAS made commitments of converging the international accounting standards and U.S GAAP and so several initiatives have been undertaken by the FASB to enhance this convergence of the U.S GAAP with the IFRs.
The first initiative involves the standards setters simultaneously conducting the joint projects through the sharing of the available resources such as staff to ensure that the joint projects are accomplished at the same time for both the oversight Boards. The joint projects that are currently underway by both the FASB as well as the IASB are business combinations, financial statements, conceptual frameworks and revenue recognition (Kirk 6).
The other initiative towards convergence is the short-term project which is being undertaken concurrently with the International Auditing Standards Board and its main objective is to come up with standards aimed at enhancing convergence. The scope thus is concentrated on selecting the solution from the already existing IFRS and U.S GAAP so as to ensure that the solution is of high quality and that there are equal representations from both sides (Pounder 1).
There is also the presence of IASB members at all times at the places where FASB are located so as to create an association and this, in turn, helps to facilitate the exchange of information, opinion and ideas and also to enhance cooperation between IASB and FASB.
The other initiative involves the FASB to the IASB projects to keep track of what is happening and also correct mistakes as and when they occur. Then a research project involving convergence of both the FASB staff and the project is conducted and it is aimed at ensuring that high-quality auditing standards are developed globally so that the stakeholders can have confidence as far as the standards are concerned.
Barriers towards effective convergence
The road towards effective convergence of U.S GAAP with the IFRS have been faced with several challenges. The mere act of educating the staff involved in the convergent process i.e. the board of directors, the senior management, and the accounting personnel is a challenge due to the training costs and much time is involved. There have also been mismatch between the convergent requirements and corresponding capacity to perform i.e. the mere convergent of U.S GAAP and IFRS requires certain minimum capacity levels and therefore well-qualified individuals have the capability of completing the convergent process within a shorter period as compared to a team that is not adequately trained (Pounder 1).
There have been some misunderstandings as far as the international standards nature is concerned. Different countries around the world have their own understanding of the international standards and so the progress towards converging the U.S GAAP with the IFRS has been hindered as many people lack knowledge of what the standards entail and the reason behind convergence. Thus the road towards convergence has never been smooth as some have only adopted selected standards only and others have not accepted the convergence of some standards as they deem them not relevant hence the challenge.
There has also been a mismatch between the market demands and the accounting and auditing demands and thus posing a challenge because both the U.S GAAP and the IFRS are designed in order to comply with the regulatory regimes. Some nations operate in an environment where there is no cooperation as far as the government and other regulatory agencies are concerned and so hindering the effective convergence.The political environment has a major role as far as the successful convergence of U.S GAAP and IFRS is concerned implying that those countries that have unstable political environment pose a major setback in convergent process.
The existence of different cultures is also a barrier towards effective convergence of U.S GAAP with the IFRS because some countries are usually satisfied with the status quo and they don’t embrace change quickly. Different countries produce different commodities and hence the economy sizes vary and so some countries feel that the convergence will bring about standards that will only be applicable in those countries that have higher Gross Domestic Products (GDPs) i.e. the citizens from poor countries have a negative attitude towards convergent because they regard it as irrelevant as far as they are concerned as opposed to people from developed nations. It is also harder to get ideas from different people around the globe for the convergent process due to the language barriers among people.
The attitude of the current U.S auditing setting bodies towards the convergence
The current U.S auditing bodies include the i.e. ASB and PCAOB welcome the convergence efforts because they regard it as the means through which there will be uniformity as far as auditing aspects such as consistency and comparability is concerned. The convergence is being viewed as plan which will require auditors to spend more time with their clients and this thus implies that the auditor’s work will be increased and hence higher audit fees (Epstein & Jermakowicz 1).
The use of International auditing standards is rising daily across the world and particularly in the United States of America. The convergence thus is necessary to restore public confidence. Convergence should be applied in all sectors ranging from insurance, health, banking e.t.c. The convergence should aim at providing quality standards that will be applicable even in the future and hence there is need for wide consultations and thorough research before the standards can be deemed as quality and universally accepted. Convergence will enhance the resource allocation and also ease the financial reporting burden as the process that is involved in preparing the group, as well as individual financial statements, will be simplified.
Epstein, Barry & Jermakowicz, Eva Wiley. Interpretation and Application of International Accounting and Financial Standards. New Jersey: John Wiley and Sons, 2008. Web.
Kirk, Robert. International financial reporting standards in depth. Oxford: Elsevier, 2005.
Nikolai, John. Intermediate Accounting. Stanford: Cengage Learning, 2009. Web.
Pounder, Bruce. Convergence Guidebook for Corporate Financial Reporting. New Jersey: John Wiley and Sons, 2009. Web.
Schroeder, Richard & Cathey, Jack. Financial Accounting Theory and Analysis: Texts and Cases. New Jersey: John Wiley and Sons, 2010. Web.