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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 University: Executive Education, Inc. Print.

Kirk, Robert. Ifrs: A Quick Reference Guide. Oxford: CIMA, 2009. Print.