...Comparing IFRS to GAAP Kelly J. Feuerhak ACC 291 October 20, 2014 Gary Foote Comparing IFRS to GAAP When dealing with the accounting world, one needs to take a look at not only GAAP (Generally Accepted Accounting Principles) but also needs to learn the IFRS (International Financial Reporting Standards). There are a number of differences between these two systems. For the purposes of this report, we will cover the difference associated with fair value measurements, depreciation, plant assets, contingent liabilities and the differences and similarities associated with accounting for liabilities. Fair value measurements have been a topic of discussion for FASB (Financial Accounting Standards Board) and the IFRS. They have been working implement fair value measurements for financial instruments. They have agreed upon two steps one is to report fair value information in the notes. The second is the option to report in the financial statements. Component depreciation specifies that any significant parts of a depreciable asset that have different estimated useful lives should be separately depreciated. (Kimmel, Weygandt & Kieso, 2013) Component depreciation is required under IFRS when parts are of the items being depreciated having different useful lives. An example of this is when a building has a useful life of seven years, but the land it is being built on has a useful life of 15 years. Each item must be depreciated at its own value with separate entries in the...
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...IFRS vs. GAAP: Same or Different ACC407 January 27, 2013 Catherine McBride IFRS vs. GAAP: Same or Different The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are working on nearly a dozen joint projects designed to improve both U.S. Generally Accepted Accounting Principles (US GAAP) and International Financial Reporting Standards (IFRS), and ultimately make the standards fully compatible. But in the mean time, the two predominant accounting standards to this day are the U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards). These two standards have several differences because they both take a completely different approach to their methodology. The U.S. GAAP is more rule-based, where IFRS is principal-based. With IFRS's principal-based approach, a lot of room was left open for interpretations for similar transactions. It gives room for second guessing, debate and conjecture. Anytime you have a fundamental system that can be debated you create a forum of uncertainty that then requires an arbitrator who can settle the dispute. This arbitrator is called the standards setting board, and it provides fewer exceptions than a rule based system (Parrott, 2008). With the U.S. GAAP you have a rule-based system. This is a more clear approach that distinguishes between what seems correct and what is correct. There is no room for interpretation. Each process has a set...
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...Property, Plant and Equipment Property, Plant and Equipment I- Nature of Accounting Issues Businesses purchase and use a variety of fixed assets, such as equipment, furniture, tools, machinery, buildings, and land. These fixed assets are long-term or relatively permanent assets. Also, they are tangible assets because they exist physically. They are owned and used by the business and are not offered for sale as part of normal operations. Perhaps the most descriptive titles these assets are known under are plant assets or property, plant and equipment. Depending on the industry, the plant assets of a business can be a significant part of its total assets. That is why the accounting for these long-term assets has important implications for a company’s reported results. In this paper, we discuss the proper accounting for the acquisition, use, and disposition of property, plant, and equipment. Before going over a brief overview of the nature of accounting issues, we ought to take a deeper look at what plant assets really are. The major characteristics of property, plant, and equipment are as follows: * They are acquired for use in operations and not for resale. Only assets used in normal business operations are classified as property, plant, and equipment. For example, an idle building is more appropriately classified separately as an investment. Also, land developers or sub dividers classify land as inventory. * They are long-term in nature and usually depreciated...
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...financial statements based on the criteria for that country. For example, a European based organization is reporting under the IFRS standard while their branch in the United States is using US-GAAP. While the differences do not outweigh the similarities, GAAP and IFRS standards have caused some concerns in financial reporting. These concerns have led to the evaluation of these two reporting standards and the discussion on whether to move IFRS worldwide. This paper will outline a few of the differences between GAAP and IFRS as well as review the discussion of standardized reporting using IFRS. Introduction Historically, accounting and reporting standards in the United States have been set by the AICPA (American Institute of Certified Public Accounts) as laid out by the regulations set by the Securities and Exchange Commission (SEC). In 1973, the Financial Accounting Standards Board (FASB) was developed by the AICPA as a council for establishing standards for reporting for all United States companies. Under FASB, GAAP was reorganized into approximately 90 accounting standards offering concise methods to follow for financial reporting. This not only allowed for ease of access when reading US financials statements, but also allowed for comparison of documentation for investments, credits, and other financial decisions. On the other hand, the International Financial Reporting Standards (IFRS) were developed by the International Accounting Standards Board (IASB) based in London. Currently...
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...Is the Difference in Accounting Treatment of Post-Retirement Benefits under IFRS Beneficial or Detrimental to the Financial Position of a Company Currently Reporting Under US GAAP? Megan N. Cook, CPA, CFE Accountancy 521 Professor Lawrence March 9, 2009 The first pension plan offered by an American employer was that of American Express in the year 1875. Amex’s plan did not resemble the plans that we see in today’s time; the first “modern” defined benefit plan was created in 1940 by the automotive behemoth General Motors. These plans of the past still do not resemble plans that we are familiar with today. In the past, employers could exercise a “pension put” option and, in essence, close the plan down at the current level of funding and turn the assets over to the retirees. This is not an optimal situation, as many plans at the time were severely under funded and retirees would be left with pennies on the dollar of what they were counting on for retirement. (Fortune, 2005) Post-retirement benefits are volatile on a couple of different fronts; up until the reforms in 1974 which created ERISA and the PBGC, employees had to put blind faith in their employers to secure their futures after their working years were over. (Fortune, 2005) On another front, these benefits pose a significant accounting problem – how should a company account for the costs and liabilities associated with these benefits they had to give their employees at a later and relatively indeterminable...
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...Introduction Basically, the study is on the differences of Generally Accepted Accounting Principles (GAAP) influence in property management industry. The study focuses on two basic accounting principles in valuing assets, which are fair value and historical cost. The property refers to the land and building, as those are the main part of total fixed assets of a company. Asset is the most important element in the balance sheet, hence the method used for assets valuation is very important to avoid over or under estimation. This is the reason why the choice for measurement method is importance in determining the value of assets because it will affects the acquisition price and the comprehensive income of the firm in terms off income and shareholder equity. The author too focuses on the accounting treatment in accordance to International Financial reporting Standard (IFRS), US GAAP and Greek GAAP. With reference to the article, asset can be defined as a good able to provide a constant flow of services such as housing services and a source of cash flow. Assets are ruled by a set of basic aspects such as the cost (cost of land or construction cost), the residual value, the useful life estimation and depreciation charge. These elements are correlated with the type and use form of assets. The author also apply some accounting principles in their study such as prudence, historical costs, substance over form, going concern, true and fair view and many more. Data Methodology/approach ...
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...to Initial Recognition Introduction The reasons why we choose to analyze the revaluation of PP&E are: 1. They are often involved in large amount of transactions and initially recognized at cost, and depreciated subsequently, as a result, it takes a lot of work to keep record of its carrying value; 2. PP&E makes up a large percentage of the total assets, especially for manufacturing companies, and is expected to be long-term assets held for use in production; 3. Mostly they are carried on the Balance Sheet based on the cost no matter how much their actual values are. So it is possible for companies to inflate or write down the value of PP&E by managers. Therefore, the investors have to pay attention to the policy of the PP&E and in this memo we tend to analyze the account deeply and understand how to the amount is reported on financial statement. In order to find the differences between IFRS and U.S GAAP on this subject, summaries of the requirements of GAAP and IFRS separately will lay a foundation for the comparison. IFRS: IAS 16 An entity may choose 2 accounting models for its property plant and equipment: an entity shall apply the same model to the entire class of PP&E (IAS 16-29: An entity shall choose either the cost model in paragraph 30 or the revaluation model in paragraph 31 as its accounting policy and shall apply that policy to an entire class [Refer: paragraph 37] of property, plant and equipment.) 1. Cost model (IAS 16-30: After recognition...
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...“Weak Signal: Evidence of IFRS and US GAAP Convergence from Nokia’s 20-F Reconciliations” Nokia was created in 1967 through a merger and has become one of the world’s leaders in mobile communications and electronics. The Finland based company gained a lot of power through acquisitions within the telecommunication and electronic market, made around the 1980’s. The company is now specializing in four segments, mobile phones, multimedia, enterprise solutions, and networks. Nokia has ADRs (American Depository Receipts), which allow investors in the US to trade securities without having to trade in foreign capital, that are currently traded in the New York Stock Exchange as “NOK”. Company shares are also being traded on the Frankfurt, Helsinki, and Stockholm stock markets. Nokia’s first issuance of an ADR was in 1994. Since the communications market is changing and growing very rapidly, the best way to differentiate is to acquire smaller companies and share resources and knowledge. A lot of money is spent on research and development of more advanced technologies to gain a competitive advantage. Currently, Nokia has teamed with Microsoft to offer an alternative to the android and Apple’s iOS. Nokia also has a strong presence in markets such as the wireless handset and wireless infrastructure markets. According to Standard& Poors Communication Equipment 2006 Industry Survey, only Ericsson was ahead of Nokia in being the top supplier of wireless infrastructure. In the same report,...
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...Accounting Horizons Vol. 24, No. 3 2010 pp. 355–394 American Accounting Association DOI: 10.2308/acch.2010.24.3.355 Global Accounting Convergence and the Potential Adoption of IFRS by the U.S. (Part I): Conceptual Underpinnings and Economic Analysis Luzi Hail, Christian Leuz, and Peter Wysocki SYNOPSIS: This article is Part I of a two-part series analyzing the economic and policy factors related to the potential adoption of IFRS by the United States. In this part, we develop the conceptual framework for our analysis of potential costs and benefits from IFRS adoption in the United States. Drawing on the academic literature in accounting, finance, and economics, we assess the potential impact of IFRS adoption on the quality and comparability of U.S. reporting practices, the ensuing capital market effects, and the potential costs of switching from U.S. GAAP to IFRS. We also discuss the compatibility of IFRS with the current U.S. regulatory and legal environment, as well as the possible macroeconomic effects of IFRS adoption. Our analysis shows that the decision to adopt IFRS mainly involves a cost-benefit trade-off between ͑1͒ recurring, albeit modest, comparability benefits for investors; ͑2͒ recurring future cost savings that will largely accrue to multinational companies; and ͑3͒ one-time transition costs borne by all firms and the U.S. economy as a whole, including those from adjustments to U.S. institutions. In Part II of the series ͑see Hail et al. 2010͒, we provide an analysis...
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...Convergence Project is undertaken by the IASB and the FASB jointly aiming at removing the differences between the two sets of accounting Standards, the GAAP and the IFRS. In other words, the main purpose of the project is to make the accounting standards of both the IASB and the FASB comparable so that there will be a global used accounting standard. (Deegan 2010, p49) This project will make international financial reports more comparable and more helpful for information users. The development of Conceptual Framework is a basic requirement for the changes of accounting standards. With the international convergence of financial framework, a more developed common framework is required to provide a basis for the IASB and the FASB to develop high quality common standards, to eliminate differences between the two sets of standards and to seek to replace weaker standards with stronger standards; Therefore the development of conceptual framework project is a basic need for the conducting of convergence project. In addition, the convergence project will lead professionals to realize the change of information demand and financial system. Because of these changes, the conceptual framework, being developed two decades ago, need to be evolved. (Deegan 2010, p49) Otherwise the current conceptual framework will not be helpful to issue a common set of principle-based standards. (IASB 2005) 2. TT * Limitation to meet current financial environment. The conceptual frameworks of both...
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...Comparing IFRS to GAAP Michaela Lyons ACC/290 03/28/2016 Sharon Powers Comparing IFRS to GAAP This collaborative team experience has been quite motivating and has really pushed me to research the information extensively to ensure my personal understanding. My team didn’t exactly connect easily and it really pushed me to develop my understanding on my own. Although that isn’t the ideal outcome in a team setting, however in my opinion it actually helped me push further. GAAP is the US Generally Accepted Accounting Principles, the accounting standard used in the United States, while IFRS the International Financial Reporting Standards is used in a vast amount of countries around the world (Tilea, D. M., Bleotu, V., & Serban, A. A. M. (2013)). The Contrast IFRS does not command an exact order or classification of accounts on the statement of financial position. In most cases, companies report assets in reverse order of liquidity. GAAP explicitly requires that all accounts be ordered based on their degree of liquidity. Consequently, cash is usually reported first and non-current assets will be reported last. GAAP and IFRS sustain comparable perspectives on the neutrality of monetary data. It’s contracted that economic reporting data should be pertinent and loyally signified. Material that is pertinent is anything that could be viewed as useful in the eyes of an investor, creditor, or regulator. Material that is loyally signified...
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...sheet of many companies whether it is a publically traded or a privately owned company. In simple terms, goodwill is the result of one company obtaining another. In accounting, goodwill is identified as an asset that has future economic benefits, which results from the acquisition of another company’s assets (FASB ASC 350-20-20). This account is shown on the balance sheet of the acquiring company. The excess of purchase price less the book value of the company represents goodwill. The purchase price is also known as the fair value. In other terms, book value is also known as carrying value, which is the book value minus any accumulated impairment amounts. If the acquiring company pays more than the carrying value, there is a premium. Premium is defined as the additional amount that is paid in excess of the ordinary price, similar to the idea of a premium bond. In order to provide consistent and comparable information about goodwill, the Financial Accounting Standards Board (FASB) has established Generally Accepted Accounting Standards (GAAP) that are used to measure and valuate the impairment of goodwill for companies operating their businesses in the US. Also the International Accounting Standards Board (ISAB) has established international standards known as IFRS. Both the FASB and the ISAB have created accounting standards to help companies determine the valuation and impairment of goodwill. Goodwill is classified as an asset, specifically in the intangibles section on the...
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...Organizacija, Volume 41 Research papers Number 6, November-December 2008 DOI: 10.2478/v10051-008-0023-5 Accounting Treatment of Goodwill in IFRS and US GAAP Mateja Jerman, Massimo Manzin University of Primorska, Faculty of Management, Cankarjeva 5, 6000 Koper, Slovenia, mateja.jerman@fm-kp.si, massimo.manzin@fm-kp.si The article presents an overview of the new accounting treatment of goodwill regarding International Financial Reporting Standards and American Generally Accepted Accounting Principles. Goodwill acquired through a business combination is no longer amortized but tested for impairment. Despite the fact that the objective of the new International Financial Accounting Standard has been to move towards international convergence; significant differences between standards still exist. The article presents the main changes of the regulation in the last years and the key differences between the two accounting treatments. In spite of the new accounting approach there are still lots of discussions, which indicate that the field is still not properly regulated. Finally, the article offers possible directions for future research and reporting practice. Key words: goodwill treatment, impairment of goodwill, intangible assets 1 Introduction We are facing a new era of economic development with...
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...than a decade now, there has been a movement around the world to develop a common set of high-quality accounting standards that can be applied globally. Comparable accounting around the world, if high standards are instilled and application was consistent, would make markets more efficient by letting investors compare companies from different countries. In particular, the issue of American adoption of International Financial Reporting Standards (IFRS) is of importance because IFRS standards are used by companies in many countries around the world, including all the countries in the European Union, and some say that the best hope for assuring that the international standards are uniformly followed would be having The Securities and Exchange Commission (SEC), responsible for deciding what accounting rules apply in the United States, involved in enforcing them (Norris, 2012). But, efforts have been under way for years to accomplish this convergence and in a number of areas they have been unable to reach agreements. Because of the expansion of commerce worldwide by many businesses, other issues have arose in this process, such as the need for common global regulation of banks and a need for a global set of ethical standards. In the 1970s, the Foreign Corrupt Practices Act (FPCA) sent a chill throughout the business community by criminalizing the act of making payments outside the US in pursuit of contracts (George, 2008). Making payments to obtain business is common practice in many...
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...EFFECT OF CULTURE ON THE IMPLEMENTATION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS SUBMITTED TO PROFESSOR MARC MASSOUD AND DEAN GREGORY HESS BY MITCHELL SKOTARCZYK FOR SENIOR THESIS SPRING 2011 2 Table of Contents I. Introduction…………………….……………………………………………………………….4 II. Literature Summary………………………………………...………………...….……………..5 III. IFRS……………………...……………………………………………………..……………11 IV. Carve-outs…………………………………………………………………………………....18 V. Culture and Accounting………………………………………………………………………25 VI. Conclusion………………………………………………………………...…………………30 Appendix………………………………………………………………………………………...32 Bibliography……………………………………………………………………………………..37 3 I. Introduction As globalization increases at a blistering pace, more and more business entities continue to get involved in cross-border capital investments. A considerable cost can be applied to these types of transaction for the translation of financial statements prepared under dissimilar accounting guidelines into a comparable form. There exist a multiple number of accounting systems that create these dissimilarities, because accounting is a language...
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