To look at whether IFRS is suitable for American businesses, first I will look at one of the basic accounting concepts of historical cost. Historical Cost Accounting is an accounting term which has to do with financial capital maintainance, another of our basic accounting concepts. In this economy. One of the accounting terms in this text, the historical cost assumption would not be suitable for American businesses. Within investing, especially in this economy, investors are having trouble keeping up with the inflation rate, in fact, the value of the American dollar, once supported by gold, was for a period of time up until now deflating. In fact, over the last ten years within the united states economy we have seen no inflation from the internet boom of the late 90’s. The writer of our accoutning articles writes that the market capped at ten thousand points and up until very recently we had not seen any inflation which goes against many basic accounting concepts accounting terms such asconservative financial thoery, in fact we were seeing deflation with market numbers being under seven thousand points, at one point. The question then becomes, how do you determine that these accounting terms such as historical cost in such an unstable economy?
Basic accounting concepts go against the fact is that it is nearly impossible to determine historical cost in an economy with accounting terms such as inflation and deflation, the guage of the American dollar is so wide that there is no constant inflation but rather something only to be described instability (another of our imporant accounting terms). Basic accounting concepts such as historical cost would be better determined by determining the present day value of an asset or liabilatie (two principle accounting terms) and sticking with it. I believe that current American accounting standards (one more of our basic accounting concepts) do a better job of determining the cost of an asset or liabilatie than that of the IFRS. Basic accounting concepts outline that you must take into account that the actual cost of an item is changing so frequently that it would be nearly impossible to calculate the unit cost of an item at a given time. You must take into account that the IFRS need to be updated to the present day financial settings, basic accounting concepts of historical cost may have been plausable when discovered, but we must remember that the market is ever changing. Even market gurus , who know every of the basic accounting concepts along with have vast knowledge & understanding of the markets & who make money sending out recommendations on stocks who claim to have figured out the market eventually fail, in fact, most men only hold the title of a market guru for a period of four or five years. There opinion quickly becomes useless and the masses move onto another different market guru. That being said, we only determin the accounting terms historical cost & cost principle apply within a degree of control for only a few business days, and by the time an accountant could accrue the amount of historical cost of an item, the item would surely be at a different value than when he started the calculation. Therefore, this of our series of accounting articles ponders; Is it ever possible to determine historical cost?
In the next part of our series of accoutning articles we look at the basic accounting concepts in one of our newly mentioned accounting terms the constant purchasing power accounting or CPPA. In my opinion, purchasing power is more determined by asset power rather than liquid income (important of our accounting terms). If a person were to own 100 widgets (one of our accounting terms primarily used in Economics which refers to items to be sold) which had a historical cost of one dollar a piece and 100 dollars the 100 widgets, in any economy would be worth more than the 100 dollars. Say those widgets were buildings for instance, all worth one dollar a piece when purchased, or having a historical cost of one dollar a piece. In most economies those 100 widgets of land would be worth more than that 100 dollars cash. That is because of our basic accounting concepts it is crucial to assess the value of land which grows at a more predictable rate than that of the value of a dollar. In essence, the purchasing power of 100 widgets, although the cash is more liquid (another of our accounting terms, meaning easily exchanged for cash), understood, is greater than that of cash. That being said, basic accounting concepts deduct that the assumption is that cash is the most liquid of assets and has a greater purchasing power but in my opinion within a short time frame, say, five years, the purchasing power of the 100 widgets would be greater than that of the purchasing power of 100 dollars. To reinforce a point which is one of the most important accounting concepts in that, the historical cost of equal land is greater than that of the historical cost of an equal amount of money. That being because of the aforementioned point that the value of the dollar is too unstable to be equated equally with that of the value of land, in essence, the fact that money is so liquid makes it more unstable and easier to lose than the or the basic accounting concepts of the acquisition of property and the acquizition of capital gains. You must understand that property is revalued every three years while the value of a dollar changes daily, and is almost always decreasing. To clearly state my opinion, if you held onto a land worth a dollar for three years, and held onto a dollar for three years, your chances are infinitely greater that the value of that dollar will be worth less than the value of that dollar’s worth of land even though the land is far less liquid (see our accounting terms).
The next of our basic accounting concepts is that U.S. GAAP (one of our accounting terms which stands for Generally Accepted Accounting Principles) is far more efficient than IFRS. Many scholors of accounting articles ask, why we are being pushed to use IFRS by 2016. Using GAAP, companies can much more easily compare things like assets than that of which IFRS would be used. Basic accounting principles stand in the concept that GAAP is more concrete and uses less of concepts like inflation and deflation. How could we clearly state inflation and deflation rates when they are changing so rapidly? We must remember that the concepts of GAAP are constantly changing while the concepts within the IFRS seem to have stayed constant. IFRS was instituted in 1989 while everyone knows of the basic accounting concepts being in that GAAP has been around since accounting has become a profession. To clarify my points, the economy had been at a constant inflation rate up to 1989. It was easy to determine assets and liabilities using IFRS in 1989 because the economy they had not seen an economy so instable since 1989 when the market crashed. Between 1929 and 1989 we experienced an enormous upswing in the economy, constant inflation (another of our accounting terms). Today, we are introduced into a new economic age, the age of instability. In a book entitled “The Long Run Cycles of Monetary Growth” it was stated that the economy hits a depression every 75 years. The people who created IFRS were probably not even alive to experience the depression and we determine that it is viable to institute IFRS now in such incertain economic times. Without GAAP, the writers theory would have come true but accounting saved us from that depression which he predicted to hit at the time at which it did.
So, in looking at our basic accounting concepts we ask; How can we create a stable economy using IFRS while GAAP is what kept us from expieriencing another depression. In my opinion IFRS would have simply caused another depression. With the value of the American dollar dwindling and the amount of American debt skyrocketing, IFRS would only hurt the American economy. As the writer of our series of accounting articles sees that other countries currency inflates the American dollar is deflating and changing to IFRS in America would dwindle American economic power. To date, there are over 150 pronouncements (one of our accounting terms meaning changes) to GAAP. If we were to keep updating GAAP as we have been the value of GAAP would far exceed that of the IFRS. From what I’ve read, and from what I know, it is nearly impossible to constantly update the value of assets and liabilities using IFRS.