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IFRS are the most applied accounting principles all over the world. More than 10000 companies in 114 countries have embraced the use of the IFRS standards in one way or another, and an increasing number of countries are adopting the principles every year with a reason of enhancing the comparability of various financial statements. This will thus enable investors globally to trade their wealth in bonds, best stocks and a variety of financial instruments available (IASB, 2009).

IFRS have been implemented and adopted as the major requirements for all countries. This is because it outlines the basis used for accounting and reporting in most companies. The European Union companies listed on the stock exchange were required to report all their financial data following the IFRS from 2005. India and Canada wanted to ensure that all their companies adopted the IFRS principles by the year 2011 (IASB, 2009). More countries are voluntarily adopting the IFRS because of gains like higher economic growth and increased accessibility to foreign capital. The other benefits include improved transparency, accountability, quality, and comparability of the various financial statements that will later result in lower cost of preparation of these financial statements. It also aid in making investment decisions (Abbas & Mirza 2011, p. 68)

The adoption of IFRS standards in other countries have lead to critical analysis of how to carry out costs- benefits analysis. The voluntary adoption of IFRS standards by some firms has some effects, which could be either positive or negative. A group of scholars examining German firms which adopted IFRS accounting standards  found out that these firms experienced low bid-ask spreads and a more improved turnover compared to firms who were using German GAAP accounting standards.

Studies performed on mandatory IFRS reporting analyzed the effects brought about the introduction of these accounting principles. Earlier studies carried out by scholars tried to find out whether the implementation of IFRS in EU has benefits or costs to various firms In relation to their stock market views (Krishna & Palepu 2007, p. 76).

The scholars found an insignificant, negative market view to the adoption sequences. Firms, which were audited by the Big Five Auditor, showed increase in their market reactions after the implementation of the IFRS. When another study was conducted based on the capital market effects of IFRS introduction, it was found out that market liquidity increased by almost 5% as compared to market liquidity of 3% prior to adoption (Abbas & Mirza, 2011). The firms also showed a decrease in their costs of capital and the increase in gross equity valuations, which were measured in Tobin’s q. These benefits, however, according to the case study, exists in nations which have strict policy enforcement regimes and in environments that booster developed reporting incentives.

The magnitude of the benefits usually exceed the effects or consequences for mandatory adopters of IFSR standards, meaning that unlike voluntary adopters, mandatory adopters never gain in terms of market liquidity in the IFRS mandate. As the mandatory adopters of IFRS policy already uses the policy in reporting, the explanation for this outcome is that the mandatory adopters pass positive externalities on the voluntary adopters through increasing a class of comparable firms, which will later result in enhanced risk-sharing over a wider pool of investors. As the voluntary adopters have good reporting policies to reckon with, they are also required to be responsive to various institutional changes, hence indicating that they have larger and more pronounced effects than mandatory adopters (Abbas & Mirza 2011, p. 66).

Today, there is no tangible proof that the changes in the internal environment of a firm are wholly responsible for the realized capital market outcomes. Countries with poorly developed legal framework and reporting incentives, firm value, and market liquidity will remain unchanged under the IFRS mandate. Moreover, the consequences on forced implementation are highly recognizable in countries with high GAAP and IFRS disparities together with developed and efficient reporting incentives (Abbas & Mirza 2011, p. 66). The evidence suggests that the existing strength in the countries’ formulation regimes and the firm’s reporting incentives usually play a great role for capital-market effects.

The findings reported therefore, indicated that there is a positive relationship between capital-market results and IFRS adoption. There is still, however, a considerable heterogeneity as regards the consequences across firms and even countries. In addition, with the results from voluntary adoption, there is no clarity as to what extent the effects so far documented can be linked to IFRS- disparities in accounting standards and principles per se.

The cost-benefit analysis (CBA)  of IFRS implementation in most countries deals with analyzing the cost incurred and benefits gained by the affected (users and preparers). The cost-benefit analysis done in Europe concerning the implementation of IFRS is also applicable in studying the potential implementation of the IFRS in the USA. What needs to be considered first is that US economy together with its internal institutional framework is different in several ways (Thomas, et. al. 2008, p. 66). Therefore, even if we consider IFRS implementation and the resulting benefits in other countries, it is not necessarily true or applicable to the US. The dilemma is therefore, to ascertain as to whether the switching of GAAP to IFRS will change the quality of US corporate financial reporting or not. Assessment of the compatibility of these standards with vital features of the USA internal framework like taxation and litigation is important. Later, we need to explain the relevance or importance of the already existing IFRS/US and GAAP accounting disparities. Lastly, a need to discuss the diverse macroeconomic shocks like the impact it has on US capital markets competitiveness, service providers, foreign direct investments, and trade flows is important (Thomas, et. al. 2008, p. 67).

The adoption of IFRS in the US was arrived by the decision of US Securities and Exchange Commission. However, the adoption of these principles in summary is that it enhances high quality reporting and increased efficiency during the preparation of the vital financial statements (Abbas & Mirza 2011, p. 66). The benefits of reporting vary greatly across various companies, markets, and countries.

The importance of adoption of IFRS standards in the USA cannot be underestimated. The reason is that IFRS will bring comparability benefits for all US investors and firms. These stated effects result from the greater adopting of universally accepted accounting standards and not due to the fact that IFRS is better or worse than GAAP rules adopted in the United States. The comparability benefit to most US investors and firms is that USA is a large country with a developed economy (Thomas, et. al., 2008). Comparability benefits could be much more pronounced in small economies with fewer firms. Another reason is that industries and countries do have a lot of incentives in order to carry out the implementation of IFRS standards in some methods that is commensurate to the institutional infrastructure and can meet the required needs of the stakeholders (Commerce Clearing House, 1964).

Thus, the cost benefits analysis of the implementation of IFRS standards in the US shows that the benefits tend to be limited. The impact of the implementation of IFRS in the United States shows that the costs will be born by the firms especially in their reporting costs, the reporting system, and supporting infrastructure. There seems to be a transitional cost to be born by the US firms if they fully embrace the IFRS standards. Certain US firms like multinationals are likely to experience costs savings from the adoption of the IFRS since they can be able to use single system of reporting in their operations globally (Thomas, et. al., 2008).

Despite the wide acceptance of IFRS standards worldwide, they cannot be used for tax purposes and statutory reporting. Hence, the amount of costs savings to multinationals depend on the future application of IFRS in order to carry statutory reporting worldwide and the general acceptance of the  American GAAP in foreign settings (Commerce Clearing House, 1964).

Based on the cost benefit analysis, IFRS adoption in the USA involves a trade off between- short-term transition costs to the new system, comparability benefits, and recurring cost savings of a particular reporting which normally face most US multinationals. The specific effect, however, is not as direct as it depends on time and discount factor employed in the cost benefit analysis.

The effects of adopting IFRS causes redistribution effects across service providers and firms. There would be also effects from comparability facing trade flows, foreign direct investments, and portfolio flows. These effects directly are linked to the magnitude of comparability features and the specific future use of IFRS for the sake of statutory reporting globally (Abbas & Mirza 2011, p. 66).

IFRS implementation in the USA have political benefits, too, as it reflects US’S willingness to show corporation internationally. The main political cost, however, is that most countries have different financial reporting requirements as regards their existing differences more and thus in their institutional framework likely to influence IASB directly towards their specific goals. This will lead to standards that are not suited for the American accounting environment. Hence, IASB reforms should have to be followed by the American firms.

Implementation of IFRS in the US can also affect the cost of capital. The issue is that investors usually require their returns got from less liquid securities. Better disclosure when using IFRS may also lead to lowering of the investors’ risks, for example, it enables the investors to project future cash flows. The effect can drastically reduce the required rate of return of a given security and the market risk premium in the whole economy. Moreover, improved disclosure escalates the risk sharing in the economy. This could be by informing the investor community of existence of certain securities or attracting them to purchase more of these securities, which in turn reduces the costs of capital (Walton 2009, p. 15).

IFRS, when implemented, will improve the corporate decision-making as it enhances the efficiency of investment decisions made by most firms. The main concept is that IFRS will reduce the various information asymmetries that could have negatively paralyzed the raising of external capital. For example, the highly developed reporting will facilitate or enhance evaluation by investors and financial analysts, which can then result in reducing the inefficiencies in managerial decisions.

Another benefit of IFRS implementation can positively affect the decision-making and help curtail agency issues in the firm. For example, the reporting of operating performances and various governance arrangements can provide a very good benchmark that assists external investors to assess and evaluate different firm’s managerial efficiency.

IFRS implementation in the US will improve the comparability of US firms’ performance with other firms in other states or even countries. It will be less costly and easier for investors to make comparisons across firms, which enhances the usefulness of corporate reporting. Comparability in reporting enhances the investors’ ability to differentiate between profitable and less profitable firms or high risk and low risk firms. This reduces information asymmetry existing among investors and thereby lowering the estimation risk.

Increased comparability can also lead to increased market liquidity and lower the firm’s costs of capital. Comparability in reporting also can lead to facilitation of cross-border investment and capital markets integration. Foreign investors are able to carry out investment activities in the national firms, which will also improve the liquidity of various capital markets and expand the firm’s investor base hence, lowering the cost of capital, and improving risk sharing (Thomas, et. al., 2008, p. 64).

Cost benefit analysis of IFRS implementation in the United States shows that it will improve the corporate decisions. Most comparable reports enable firms to make informed decisions and come up with relevant investment options because of a better and deeper understanding of other competing firms within and outside US. Firms, which have adopted IFRS standards, can efficiently enter into contract with their customers and suppliers in other countries. It may also enable the companies to bid easily on various government contracts elsewhere.

Adoption of IFRS standards makes the firms to increase their linkages or networks with other firms. Firms with comparable financial reports will enhance their two-way communication networks in financial reporting linkages, which increase the network value to investors and firms. As the network increases, the other individual firm’s adoption of IFRS makes other firms to experience externalities. Other firm’s will gain from the individual firm’s reporting standards choices. Nevertheless, firms may not be in a position to consider the positive externalities that could arise from their individual reporting options (Commerce Clearing House, 1964).

In sum, provided the quality and the advanced nature of US GAAP connected with developed reporting strategy and market;-oriented policies in effect, the IFRS adoptions is less likely to bring positive changes in the quality of US reporting standards any further. Therefore, it would become extremely difficult to substantiate the eventual move to IFRS policies on the basis or grounds of reporting standard consequences and the related capital-market benefits, which we have so far discussed. Besides, there is less likelihood of limits as to what extent the cost of capital and market liquidity can be improved due to reporting quality advancement. Such limitations are more pronounced for USA where the reporting standards are already high.

Costs consequences of implementation of IFRS in the USA can also be felt in the transition costs. IFRS implementation requires the shedding off the existing policy and implementing the required policy. Firms will be required to bring adjustments to their initial accounting systems and procedures that requires substantial amount of money (Commerce Clearing House, 1964). During the first year, upon the publication of IFRS reports, the firms will be required to provide one-year comparative information prior to the implementation of IFRS standards. Moreover, firms will be required to train all their accounting, financial and managerial employees in the eventual preparation of these IFSR statements and to make the stakeholders and investors to be conversant with IFRS rules (Wolfgang & Piera, 2010). The breakdown will include, but not limited to, hiring external specialists because of insufficient internal knowledge and proficiency of IFRS, planning conference meetings and road shows.

These transition costs will result in increased revenues or incomes for auditing and financial reporting advisory boards. This means that there will be a financial drain from the firms to finance these advisory firms (Commerce Clearing House, 1964).

The most important thing to understand is that these costs are usually incurred by firms, which, for the first time, start using the IFRS rules. The costs will pose a strong financial drain to the comp0anies as it involves hiring third parties to facilitate the training of personnel and updating of the existing US/GAAP to the recommended IFRS.

IFRS also affects state and federal industries like telecommunications, utilities, and financial institutions that provide statements of financial position to regulators. For example, the necessary capital requirements for most financial institutions are always determined by using US.GAAP financial statements (Walton, 2009). In addition, a transition to IFRS may require a consistent evaluation of given implicit and explicit contracts together with accounting numbers (D'Atri et. al. 2010, p. 43).

A transition to IFRS   in the short-run run affects managerial compensation policies which are tied to the reported after tax earnings performance and debt covenants. Therefore, transition cost in the US is expected to be greater and expected to have fixed cost component that will eventually negatively affect the smaller firms. It is not easy to determine accurately the transition costs per firm due to numerous numbers of firms in the US (Wolfgang & Piera, 2010). According to data on 2005 EU IFRS transition, it will be much easier to estimate the initial preparation costs and expenses of IFRS financial statements (consolidated) for listed firms.

The estimates indicate that the per-firm  projections   from 0.31% of all the total sales for US firms with sales revenue of more than$700 million up to 0.05% of all the gross sales revenue for bigger firms. From these estimates, it is observed that the transition cost would total up to $ 8 billion in US alone. This estimates, however, does not include financial institutions in which their gross sales are not available or not economical. The costs are also projected to escalate if the Stock Exchange Commission needs all firms to furnish them the IFRS reports inclusive of reconciliations to the US/GAAP (Walton 2009, p. 15).

The cost benefit analysis of the implementation of IFRS in the US also reflects recurring costs. However, single time costs of conversion are less certain to be useful, they individually are unlikely to support sustaining the existing US.GAAP policy. If there exists benefits generated from the IFRS that always recur and are substantially huge, they, at last will outweigh the initial costs (D'Atri et. al. 2010, p. 43). Therefore, it is imperative to ask if there exist any crucial recurrent costs from IFRS implementation, since they will change the cost-benefit tradeoff. Since the US.GAAP consist of a comprehensive class of rules, it is less likely that about the continuing basis the direct costs for IFRS preparation may be more than those under the current system. If there is anything to go by, an individual can argue in the sense that the said direct costs and other expenses can decline due to the less complex nature of IFRS (D'Atri et. al. 2010, p.43).

US firms undertaking their business operations worldwide may see that the cost savings realized from utilizing a single stream of regulations and standards for financial reporting purposes is more important. The foreign companies undertaking their operations in the US must comply with the existing domestic standards for statutory reporting and tax purposes.  

In conclusion, the journey towards the implementation of the IFRS policies is long and difficult but the Stock Exchange Commission has given companies more time to adjust. Once implemented, the benefits experienced will far outweigh the costs. Therefore, it is very wise for all companies in the US to embrace the new accounting standards, which not only will it, enhance investor confidence, but will increase the performance of the organizations. The case studies of success stories I have mentioned in the earlier paragraphs should be a motivation to companies and US firms to adopt these policies. It is therefore, the work of the Stock Exchange Commission to adjust time element so that all the companies can gradually cope up (Catty 2010, p. 43). The discussion in itself reveals that besides the benefits that companies will reap from embracing the IFRS standards, there will also be some costs to incur. Since the costs are less than the cumulative benefits, then the decision criteria is that the companies should adopt and fully implement the IFRS guidelines in their day to day preparations of all financial statements.

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