The Advantages of International Standards on Auditing

by Josh Victor - Updated September 26, 2017
International accounting starndards have several advantages over GAAP.

International standards of auditing are quite different from American accounting standards. The Generally Accepted Accounting Principles (GAAP) that are in use in America have their own particular nuances that are favored by American firms. However, there are several important advantages to consider about international accounting standards when auditing.

Cultural Influences

One of the chief advantages of international accounting standards is that they have input form many different cultures, so they have a more universal appeal. The U.S. GAAP standards are driven by the needs of U.S. business firms and thus reflect a certain American attitude. For example, kickbacks are a part of the business culture in certain parts of the world, while they are forbidden in the U.S. and most of Europe.

Multinational Firms

An auditor has a difficult job of digging deep into a company's financial statements. It is even more difficult if it is for a multinational firm with a number of different regions with different systems of accounting. A company with one standardized international accounting system make it exponentially easier to audit the firm. Accountants can use one standard to analyze and evaluate each line item on the financial statement.

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Elimination of LIFO

International accounting standards do not accept last-in-first-out (LIFO) principles of inventory management. LIFO means that the most recent item of inventory that was placed into the stockpile will be used to value the entire stock. This rule is more liberal than the standards that can be used in GAAP. Those rules allow the accountant to choose between LIFO and the first-in-first-out (FIFO) standard based on which is more advantageous.

Write-Downs

Write-downs are also easier to audit under IAS because they only allow for a single step instead of a multi-step process. In other words, when an asset such as a loan or investment is impaired, the company can slowly write down its value over several years under GAAP. Under IAS, the company must write down the asset in one fell swoop, which will be a bigger hit to a company's short-term income.

About the Author

Josh Victor started writing in 2006 as an author for various blogs across the internet. His areas of expertise include finance, business, marketing and technology. He has a Bachelor of Arts in economics from the University of Illinois at Chicago.

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