Latin American Capital Markets

ACCOUNTING AND AUDITING STANDARDS 223Characteristics and ApplicationsIASB and FASB have a mandate to operate in different environments (internationaland national, respectively), respond to diverse needs, and apply distinct standardsettingstructures and processes.The difference between the two sets of standards isinevitable, but, if financial statements presented under IAS are to be considered appropriatefor cross-border filings, it is essential that IAS satisfy the need of the worldfinancial markets for high-quality financial information. In this respect, U.S. GAAP hasa longer history of use and records and has been repeatedly tested in the largest andmost efficient capital market in the world.Most of the controversy and debate surrounding the comparability of financialstatements prepared under IAS and U.S. GAAP revolve around four main themes.First, although IAS and U.S. GAAP are broadly similar and, in many cases, the use ofIAS can provide results that are analogous to those obtained by using U.S. GAARthe existence of alternatives creates the potential for different results. For example,under IAS 23 Borrowing Costs, the allowed alternative treatment requires capitalizationof borrowing costs incurred in the purchase, construction, or production of certainassets in a manner similar to that of FAS 34 Capitalization of Interest Costs. However,IAS 23 benchmark treatment requires that borrowing costs be expensed, which constitutesan alternative treatment with respect to U.S. GAAP The existence of differentalternative treatments and benchmarks creates a potential for noncomparabilityof financial statements.Second, some experts argue that IAS is too broad and general and cannotguarantee that similar accounting methods are applied in similar circumstances or thatsimilar results are consistently achieved. Arguably, this is true in some instances, althoughin others, IAS is equally as effective as or more effective than U.S. GAAR Forexample, both IAS 2 Inventories and Accounting and Research Bulletin No 43: Restatementand Revision of Accounting Research Bulletins provide broad, general guidelines oncost-flow assumptions in estimating the cost of inventories. However with regard toaccounting for the inventories of service providers, IAS 2 provides more detailedguidance than the does U.S. GAARThird, in some circumstances, IAS and U.S. GAAP standards are identical, butthe lack of implementation guidance by IAS creates differences when applying thestandards. For example, /AS 33 Earnings per Share and its U.S. GAAP counterpart, FAS/ 28 Earnings per Share, resulted from a team effort between IASB and FASB. HowevenFAS 128 implementation guidance is more detailed for some of the calculationsCopyright © by the Inter-American Development Bank. All rights reserved.For more information visit our website: www.iadb.org/pub