In a period when convergence is the main driving force of IASB and FASB programmes, who needs a comparison of the two sets of standards-IFRS issued by IASB and US GAAP issued by FASB? Aren't they mainly the same after 5 years of hard work of those who establish the two sets of standards? The answer lies in the fact that mostly all people who work in a multinational company has to understand the present differences between these two sets of standards. A combination of the convergence of the national standards with the IFRS and the follow-up use of IFRS standards would mean that the two accounting languages from all over the world should be reduced rapidly only to IFRS and US GAAP. Although these two sets of standards are more and more similar to each other, they are not totally identical-yet. And until they become identical it will be necessary to state clearly and explain the differences that exist between them.IFRS, US GAAP, convergence, Romanian regulations

Cirstea Andreea

Cirstea Stefan

Fulop Melinda

English

Research Papers in Economics

  846
IFRS, US GAAP OR ROMANIAN REGULATIONS CAN THEY BECOME ONE? 
Cîrstea Andreea 
Universitatea Babe￿ Bolyai din Cluj-Napoca 
Facultatea de ￿tiin￿e Economice ￿i Gestiunea Afacerilor 
Cluj-Napoca, România  
Cîrstea ￿tefan Drago￿ 
Universitatea Babe￿ Bolyai din Cluj-Napoca 
Facultatea de ￿tiin￿e Economice ￿i Gestiunea Afacerilor 
Cluj-Napoca, România 
Fülöp Melinda Timea 
Universitatea Babe￿ Bolyai din Cluj-Napoca 
Facultatea de ￿tiin￿e Economice ￿i Gestiunea Afacerilor 
Cluj-Napoca, România  
 
In a period when convergence is the main driving force of IASB and FASB programmes, who 
needs a comparison of the two sets of standards-IFRS issued by IASB and US GAAP issued by 
FASB? Aren’t they mainly the same after 5 years of hard work of those who establish the two sets 
of standards? The answer lies in the fact that mostly all people who work in a multinational 
company  has  to  understand  the  present  differences  between  these  two  sets  of  standards.  A 
combination of the convergence of the national standards with the IFRS and the follow-up use of 
IFRS standards would mean that the two accounting languages from all over the world should be 
reduced rapidly only to IFRS and US GAAP. Although these two sets of standards are more and 
more similar to each other, they are not totally identical-yet. And until they become identical it 
will be necessary to state clearly and explain the differences that exist between them. 
 
Keywords: IFRS, US GAAP, convergence, Romanian regulations 
 
JEL Classification: M41  
 
1. Introduction 
Convergence is in fact a term that defines either elimination or assimilation of the differences and 
it represents the main priority that exists both on the agendas of the U.S. Financial Accounting 
Standards Board (FASB) and the International Accounting Standards Board (IASB).  
Nevertheless the major differences existing between US GAAP – issued by FASB - and the 
International Financial Reporting Standards (IFRS) issued by the IASB are the topic of many 
discussions. These differences suggest that the two GAAPs keep on using different languages. 
This apparent contradiction made many people ask themselves how different are these sets of 
standards and where they do exist, why do they exist and when will they disappear?  
Even if the US standards and the international ones do contain differences, the general principles, 
the conceptual structures and the accounting results between them are most of the times the same 
or similar, although the differences seem to have overshadowed the similarities. We believe that 
an analysis of this problem should not forget the fact that the two sets of standards are more 
similar than different for most of the transactions, IFRS being mainly but not totally based on the 
same principles as US GAAP. 
 
2. Literature review 
There  were  issued  various  statistics  which  refer  to  the  importance  of  both  these  accounting 
regulations:  IFRS  AND  US  GAAP.  These  statistics  were  realised  by  the  most  known  and 
important firms of audit from all over the world and demonstrate the real significance of these   847 
two accounting regulations, IFRS and US GAAP, as accounting languages of the world. The 
analysed indicators for realizing the statistics are: the international exchange capitalization and 
the presence in the list of the biggest 500 companies in the world.
574   
So, out of an international exchange capitalization of 36 trillions USD
575: 
-  11  trillions  USD  correspond  to  the  companies  that  adopted  IFRS  as  a  financial  reporting 
system; 
- 17 trillions USD correspond to the companies that adopted US GAAP;  
- 4 trillions USD correspond to the companies that apply Japanese GAAP;  
- the rest refers to other financial accounting systems (Canadians; Indians).  
And among the companies included in Fortune 500, in 2005, 200 applied IFRS, 176 applied US 
GAAP and 81 applied Japanese GAAP. 
 
3. Methodology 
The character of this paper is a theoretical one. The data were collected through analyzing of 
regulations and accounting standards such as: American, International and Romanian standards 
and through studying the existing literature regarding the differences between these standards. 
The paper has two parts. The first one is about the importance of convergence for the entire world 
and the second one presents a comparison between the regulations or accounting systems which 
are internationally relevant. Of course, we also attached importance to the Romanian accounting 
system. 
 
4. The process of convergence 
Convergence refers to the activity of accounting regulations of heading for the same goal, leading 
to  similar  economical  conclusions;  but  at  the  same  time  we  could  say  that  it  refers  to  the 
emergence of functional or structural similarities between systems that differ from the point of 
view of their accounting doctrine and culture, as a result of similar conditions imposed by the 
economical globalization.  
“To converge” means getting to the same result or to the same point. For a better understanding 
of this concept which is frequently used in accounting, we have to start from that point of view 
that  a  perfect  harmonization  of  accounting  regulations  cannot  be  possible,  because  each 
accounting  system  is  influenced  by  economic,  financial,  fiscal,  social,  juridical  and  cultural 
variables of the environment
576.   
The  convergence  means  the  alignment  to  the  International  Accounting  Regulations,  without 
taking them word by word. The convergence refers to a sole set of standards, with the possibility 
of their conformation to the national realities, issued by the representatives of multiple countries. 
As a conclusion we can say that the national accounting systems should adapt their regulations to 
the international ones (IFRS/IAS) or just to enact some changes. 
There have been different opinions related to convergence. There have been many who didn’t 
consider possible to achieve this convergence process but there have also been others who saw it 
possible.  
Those who didn’t see possible the achievement of convergence and only saw the obstacles are the 
pessimists who doubted the opportunity of adopting the international accounting regulations that 
might have assured the convergence.  
The arguments that they bring are some realities that different accounting systems are facing 
with: difficulties and time in correcting some governmental errors, ethical shortages, accounting 
scandals 
                                                       
574 Fortune 500. 
575 Cristea S., Armonizarea contabil￿ interna￿ional￿ ￿i practicile contabile na￿ionale. Studiu de caz pentru 
România ￿i Italia;Editura Accent, 2007, 42. 
576 Palich L.E., Gomez-Mejia L.R., A theory of global strategy and firm effiencies: considering the effects 
of cultural diversity, Journal of Management, Vol. 25, no. 4: 587-606.   848
Another category would be formed of those who believe in the utility and possibility of achieving 
this process and these will be the optimists. The main arguments brought by these are
577,
578: 
-  the  investors  and  the  financial  analysts  can  understand  the  financial  situations  of  foreign 
companies; 
- the resource flow for investors streamline internationally; 
- the multinational companies can easily establish the stabilized accounts;  
- tax authority can measure in an easier way the profit tax owed by foreign companies;  
- the enterprises can define worldwide their strategic position in their activity sector.  
We consider that big efforts are made to achieve this convergence process and we think that this 
process is realised on 3 dimensions:  
- the convergence between FASB and IASB; 
- the convergence between IAS and regional regulations; 
- the convergence between regional and national standards. 
We have still to wait and see how long this process of convergence will last and if it will be 
finally achieved.  
 
5. Differences between accounting regulations: IAS/IFRS, US GAAP and Romanian 
Regulations 
FASB  started  in  1995  a  project  with  a  special  importance  for  the  international  accounting, 
namely a comparative study between IAS and US GAAP. The goal of this project was that of 
offering the necessary information for appreciating the acceptance of IAS for the stock exchange 
quotation of the non-American companies on the capital market from USA. These differences 
were and are still discussed by IASB during its meetings.  
The differences established by the FASB’s project refer to 5 categories, namely: 
- accounting method and similar application modalities, with the mention that „similar does not 
mean identical”, in this category were included 56 from 255 reviewed differences;  
-  similar  accounting  method  but  different  application  modalities:  there  aren’t  guides  for  the 
application of the standards, in this category are included 79 from the cases;  
- different accounting method, in this category are included 56 from the cases;  
- there are allowed more alternative methods or there are problems which are treated by one of 
the standards but not by the other one, in this category are included 64 from the cases.  
Although at the beginning, not even the big accounting companies agreed that foreign companies 
should present financial situations issued according to IAS?IFRS, without a reconciliation with 
American regulation US GAAP, slowly they began to change their opinion and they joined the 
process of convergence between the two types of regulations.      
Therefore,  some  of  the  biggest  accounting  companies  (PriceWaterhouseCoopers  and 
Delloite&Touche) made some studies in which they analysed the differences existing between 
IAS and the national standards of some countries they considered as being strategic from the 
point of view of the investments. Among these countries we could mention: the Netherlands, 
Czech Republic, Switzerland, Great Britain, Hong Kong, China and others. 
Moreover, these advisory companies showed their interest and involvement in identifying the 
differences  between  US  GAAP  and  IAS,  respectively  IFRS.  Throughout  the  last  years,  the 
interest in analysing the differences between IAS/IFRS and US GAAP was constant.   
Usually,  the  methodology  of  study  of  these  differences  is  a  simple  one  and  it  consists  in 
comparing the requirements of the standards issued by IASB with the American ones. These 
                                                       
577 Obert R., Pratique des normes IAS/IFRS, Ed. Dunod, Paris, 2004. 
578 Gernon H., Meek G., Accounting – an international perspective, McGraw-Hill International Editions, 
2001. 
   849 
conclusions might be punctual and accompanied by some explanations or they can be concerned 
with thematic, where the differences between the accounting practices are more obvious.  
Of course, these differences between IFRS and US GAAP do not represent the totality of the 
differences that exist between these regulations because many times these differences depend on 
the industry where the entity is part of, on the economical nature of the entity’s activity as well as 
on the accounting policies adopted by the entity.  
These  comparative  studies  between  the  two  accounting  regulations  do  not  contain  all  the 
differences that exist between them, but are mostly concerned with the differences that were most 
often found in practice.   
Therefore,  in  the  following  table  we  will  try  to  present  the  most  important  similarities  and 
differences between these three regulations
579. 
 
Table 1. Comparative analysis between IFRS, US GAAP and Romanian Regulations 
 
 
 
                                                       
579 PWC, 2006; Delloitte, 2007; KPMG, 2007; E&Y, 2007. 
 
Subject  IFRS  US GAAP  ROMANIAN REGULATIONS 
Financial Statements 
Components  of 
financial 
statements 
Balance  sheets,  income 
statements, cash flow statements, 
statement  of  changes  in  equity 
and  accounting  policies  and 
explanatory  notes  present 
comparative  information  for  two 
consecutive years. 
Similar to IFRS, except that SEC 
requires  to  public  companies  to 
present  in  the  income  statement, 
cash flow statement, statement of 
changes  in  equity,  comparative 
information for 3 years. 
The  Financial  Statements 
comprise the: 
- Balance sheet; 
- Profit and loss account; 
-  Statement  of  changes  in 
equity; 
- Cash flow statement ; and 
- Explanatory notes. 
The  information  should  be 
presented for 2 years. 
Balance sheet  Does  not  prescribe  a  particular 
format.  A  liquidity  presentation 
of  assets  and  liabilities  is  used, 
instead  of  a  current/non-current 
presentation,  only  when  a 
liquidity  presentation  provides 
more  relevant  and  reliable 
information.  Some  minimum 
items  are  presented  in  balance 
sheet.  
Entities  must  present  either  a 
classified  or  non-classified 
balance  sheet.  The  items  of  the 
balance  sheet  are  presented  in 
decreasing order of liquidity.  
 
The  public  companies  should 
follow SEC regulations. 
The format requested is the list 
(the vertical one). 
The  assets  are  classified  by 
nature  and  liquidity  and  the 
liabilities  by  nature  and 
eligibility. 
 
Income 
statement 
Does  not  prescribe  a  standard 
format,  although  expenditure  is 
presented  in  one  of  two  formats 
(function  or  nature).  Certain 
minimum  items  are  presented  in 
the income statement.  
Present as either a single-step or 
multiple step format. 
Expenditures  are  presented  by 
function. 
SEC  registrants  should  follow 
SEC regulations.  
 
The format requested is the list  
The operating  expenditures are 
classified by nature.  
Statement  of 
changes  in 
equity 
This  statement  shows  capital 
transactions  with  owners,  the 
movement  in  accumulated 
profit/loss and a reconciliation of 
all other 
components  of  equity.  The 
statement  is  presented  as  a 
primary statement except 
when  a  SoRIE  is  presented.  In 
this  case,  only  disclosure  in  the 
notes applies.  
Similar  to  IFRS  except  that  US 
GAAP  does  not  have  a  SoRIE, 
and  SEC  rules  permit  the 
statement to be presented either as 
a  primary  statement  or  in  the 
notes. 
The format requested is the one 
presented on columns. 
This  statement  presents  all  the 
elements  of  equity  and  their 
evolution during the period. 
 
Cash  flow 
statement 
Standard  headings  but  limited 
guidance  on  contents.  It  is  used 
direct or indirect method. 
Similar  headings  to  IFRS,  but 
more specific guidance for items 
included in each 
category.  Direct  or  indirect 
method is used. 
Prescribe a similar  model  with 
that  prescribed  by  IAS  7.  
Direct  or  indirect  method  is 
used. 
   850
6. Conclusions  
No piece of work that draws a comparison between two large sets of accounting standards can 
include all the differences that might appear in accounting due to the large number of transactions 
that might take place. The existence of any differences – and their materialisation in financial 
situations of an entity – depends on various specific factors including the nature of the entity, the 
interpretation of general IFRS principles, its industrial practices and the choice of its accounting 
politics where US GAAP and IFRS offer a solution. Throughout this work I’ve tried to approach 
the differences that appeared mainly in the present practices.  
 
WHY ARE THERE ANY DIFFERENCES? 
 
While  the  national  standards  were  developed,  IASB  and  its  predecessor  the  International 
Accounting Standards Committee (IASC) had the opportunity to use the thinking of standard 
setters  from  all  over  the  world.  As  a  result  the  international  standards  contain  elements  of 
accounting standards from different countries. Even where an international standard had as its 
starting point a standard that existed in the US, IASB could improve that standard. Through this 
action IASB could avoid some of the problems that appeared in FASB standard. Besides, as part 
of the annual “Improvements Project,” IASB revises its existing standards in order to improve 
their clarity and consistency and taking advantage again of the present practice and opinions. Due 
to these reasons, some of the differences between US GAAP and IFRS refer to the standards – 
meaning, they are intentional deviations from U.S. requirements. 
As a general rule, the IFRS standards are broader and are based on principles as compared to 
those from the US. IASB avoided issuing interpretations of its own standards and preferred to 
leave the implementing of the principles that are included in its standards to the preparers and 
auditors and its official interpretive body, the International Financial Reporting Interpretations 
Committee (IFRIC). While the US standards contain important principles as well, the strong 
regulatory and legal environment from the  U.S. markets led to a more normative approach - with 
far more “clear lines,” more suggestive implementation advice and more complex interpretations.   
As  a  general  rule,  IFRS  standards  are  more  broad  and  “principles-based”  than  their  U.S. 
counterparts, with limited interpretive guidance. 
The IASB has generally avoided issuing interpretations of its own standards, preferring to instead 
leave implementation of the principles embodied in its standards to preparers and auditors, and its 
official  interpretive  body,  the  International  Financial  Reporting  Interpretations  Committee 
(IFRIC). While U.S. standards contain underlying principles as well, the strong regulatory and 
legal environment in U.S. markets has resulted in a more prescriptive approach — with far more 
“bright lines,” comprehensive implementation guidance, and industry interpretations. 
 
7. Bibliography 
1. Cristea S., Armonizarea contabil￿ interna￿ional￿ ￿i practicile contabile na￿ionale. Studiu de caz 
pentru România ￿i Italia, Editura Accent, 2007 
2. Gernon H., Meek G., Accounting – an international perspective, McGraw-Hill International 
Editions, 2001 
3. Obert R., Pratique des normes IAS/IFRS, Ed. Dunod, Paris, 2004 
4. Palich L.E., Gomez-Mejia L.R., A theory of global strategy and firm effiencies: considering 
the effects of cultural diversity, Journal of Management, Vol. 25, no. 4 
5. www.pwc.ro 
6. www.deloitte.com 
7. www.kpmg.com 
8. www.ey.com  
   

IFRS, US GAAP OR ROMANIAN REGULATIONS CAN THEY BECOME ONE?

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IFRS, US GAAP OR ROMANIAN REGULATIONS CAN THEY BECOME ONE?

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