IFRS and GAAP Convergence: Why the US Resists International Reporting Standards

Updated on June 12, 2020


Globalization is the new fact of life in this modern era, but does it apply to U.S. accountants and their practices?

The convergence of GAAP and IFRS into one global set of standards has been discussed for years, however, it seems as though FASB and the SEC are apprehensive about adopting IASB’s standards.

In the following article, the issues relating to convergence, as well as the reasoning for the low probability of convergence between these standards happening will be discussed.

Convergence: Why Not?

IFRS, otherwise known as International Financial Reporting Standards, the brainchild of the International Accounting Standards Board, is used in nearly every country on the planet.

You can view accounting standards as a type of language, which allows for the comparability of the financial reports and statements made by companies worldwide. However, there are a limited number of countries that have not adopted such standards.

The big player in this resistance is the United States, the world’s largest economic power. This creates quite the issue when it comes to the comparability of financial statements between various international companies.

The Securities and Exchange Commission of the US has expressed a need for a single authoritative standard for accounting, however, their confidence in IFRS fulfilling that need seems fuzzy.

In 2012 in a report by the SEC, there was little support in adopting IFRS as the single set of standards in the US, but there was support for the need to adopt bits and pieces of IFRS to demonstrate US commitment to a single set of standards (PwC).

Since 2012, a variety of statements strongly supporting the idea of convergence were made by Wes Bricker, the Chief Accountant of the SEC’s Office of the Chief Accountant. However, Bricker also stated that he did not foresee the use of IFRS by domestic US companies happening any time in the near future (PwC).

An interesting roadblock to the convergence of IFRS and GAAP is the incredibly litigious business territory in the US. Accountants want to avoid litigation, as they are often the first to suffer that consequence even in scenarios where they are only briefly involved in reporting or the assurance of financial reports. As a result, it is not a surprising result that US accountants want a very rigid and specific directive when it comes to financial reporting.

To help lighten the tense atmosphere of US business, FASB continues to produce very meticulous and specific guidelines, which in some circumstances differentiates even further the two bodies of standards in IFRS and GAAP. (Bogopolsky)

Politics also play a hand as far as the US is concerned. As the SEC’s purpose is to protect investors in US companies, especially US investors, they have shown some resistance to the adoption of IFRS. The SEC cites IFRS’s lack of consistency and believes IFRS is underdeveloped when it comes to small-scope issues in reporting.

Meanwhile, the SEC believes GAAP fulfills the need for an established and accepted framework in getting down to the minute details of financial reporting. Another reason for resisting IFRS that was cited by the SEC, which was discussed earlier very briefly in terms of the US business environment being overly litigious, is the idea that IFRS allows way too much flexibility when it comes to reporting decisions and judgement. (Bogopolsky)

The SEC believes that the FASB is the better standard-setting body when it comes to protecting investors and thus believes it important to continue using GAAP as the set of reporting standards. In fact, in a 2012 report made by The Office of the Chief Accountant, the SEC stated, “investors do not believe that high-quality standards should be compromised for the sake of uniformity,” (SEC) which muddles the likelihood of convergence happening until, in the eyes of both the SEC and its constituents, IFRS provides the high set of standards and protection for investors that GAAP does.

Studies on the current comparability of both IFRS and GAAP show that the two sets of standards have some changing to do before true convergence, or at least, similarity, can occur. The difference in just a handful of principles between IFRS and GAAP can be the driving force behind a noteworthy difference in the reporting both income and net assets.

Studies also show that these differences in important reporting figures vary firm-by-firm, which leads to an even larger lack of comparability for international corporations. These differences only come for a few sets of standards, and thus, may only affect a few line items on a report, however, for investors that is a significant issue when comparing one firm with another (Lindahl).

With a quick glance, it seems like the US is the black sheep of the world, just as it seems to be when it comes to the metric system. However, there does in fact seem to be a considerable amount of significant reasons for this resistance to adopting an international standard such as IFRS, mainly relating to statutory reasons, the accuracy and meticulous nature of the SEC requirements for financial reporting, and thus, the protection of the US investor, as well as some not mentioned like the costs involved in overhauling the entire US GAAP accounting system in favor of IFRS, which could come with many expenses related to training and error.

As a result of all of these factors, it appears that full adoption of IFRS by the US is very unlikely, and convergence between GAAP and IFRS, though it is slowly being worked towards, will not be realized for a very long time.


Bogopolsky, A., CPA, MBA. (2015, September 11). Does IFRS Have a Future in the US? Retrieved November 02, 2017, from https://www.ifac.org/global-knowledge-gateway/business-reporting/discussion/does-ifrs-have-future-us

Lindahl , F., & Schadewitz, H. (2016). Financial Reporting Standards: Global Or International? B>Quest. Retrieved November 2, 2017, from http://www.westga.edu/~bquest/2016/

PwC. (n.d.). IFRS in the US. Retrieved November 02, 2017, from http://www.pwc.com/us/en/cfodirect/issues/ifrs-adoption-convergence.html

SEC. Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers. (2012). Retrieved November 2, 2017, from https://www.sec.gov/spotlight/globalaccountingstandards/ifrs-work-plan-final-report.pdf.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.


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