Reading Financial Reports For Dummies
Book image
Explore Book Buy On Amazon

U.S. financial reporting standards are different than the reporting standards of every other country in the industrialized world. The U.S. is the last of the major financial players to adopt the international reporting standards set by the international accounting community. All but the U.S. have made the commitment to adopt the international standards, even though some industrial countries are just beginning the adoption process.

Why is this important to you as a financial report reader? You need to understand the differences when you start comparing the results of companies that file their reports based on U.S. GAAP to the results of companies that follow the international standards.

In July 2012, the U.S. Financial Accounting Standards Board issued its final staff report on the convergence of U.S. financial reporting standards (the U.S. GAAP) with internationally accepted financial reporting standards issued by the International Accounting Standards Board (IASB). In that final report, the staff gave its support to the convergence of financial reporting standards but did not include for U.S. adoption of the standards.

The IASB and the FASB are working together to converge standards on a topic-by-topic basis. Four key standards are now being developed:

  • Revenue recognition: Both the IASB and the FASB know that improvements are needed in how revenue is recognized, which is a critical factor for readers of financial reports. They expect to issue a final principle-based revenue standard that both the GAAP and the IFRS will use by the end of 2013. You can follow the progress of this project at the FASB's website.

  • Financial instruments: These types of instruments helped drive the world into a near depression because their reporting standards need improvement. The financial collapse of 2008 can partially be blamed on the lack of proper standards for reporting credit losses. Check out this project at the FASB website.

  • Leases: Financial statements do not include many types of leases. Instead, the financial report reader must seek details about a company's lease obligations in the notes to the financial statements. These off-the-books transactions can give the financial report reader the impression that the company is in better financial shape than it truly is. You can follow the progress of this project at, also at FASB.

  • Insurance: The U.S. GAAP does comprehensively address insurance, but international standards don't include specific accounting requirements for insurance contracts. This project is the fourth convergence project currently underway. It will likely have the least impact on changes in U.S. reporting standards.

When can you expect to start seeing the changes in international financial reporting? As these projects are completed, the changes will occur gradually. Generally, estimates indicate that it will take three to four years for an accounting change to be fully implemented. As a financial report reader, it's important to follow the news about the convergence of international standards because it impacts the information you depend on to make investing decisions.

About This Article

This article is from the book:

About the book author:

Lita Epstein, who earned her MBA from Emory University’s Goizueta Business School, enjoys helping people develop good financial, investing and tax-planning skills.
While getting her MBA, Lita worked as a teaching assistant for the financial accounting department and ran the accounting lab. After completing her MBA, she managed finances for a small nonprofit organization and for the facilities management section of a large medical clinic.
She designs and teaches online courses on topics such as investing for retirement, getting ready for tax time and finance and investing for women. She’s written over 20 books including Reading Financial Reports For Dummies and Trading For Dummies.
Lita was the content director for a financial services Web site,, and managed the Web site, Investing for Women. As a Congressional press secretary, Lita gained firsthand knowledge about how to work within and around the Federal bureaucracy, which gives her great insight into how government programs work. In the past, Lita has been a daily newspaper reporter, magazine editor, and fundraiser for the international activities of former President Jimmy Carter through The Carter Center.

This article can be found in the category: