...IFRS and GAAP Comparison ACC/291 December 8, 2014 Cameo Christopher IFRS and GAAP Comparison The two most widely known accounting standards used are the International Financial Reporting Standard or (I.F.R.S.) and the U.S. Generally Accepted Accounting Principles or (G.A.A.P.) The IFRS is used in more than 110 countries worldwide where the GAAP is generally used only in the United States. Every accountant around the globe is familiar with these accounting standards. These two accounting standards have similarities and differences that will be brought to light. We will also discuss the liabilities between the two and how the two accounting standards tie into Financial Accounting Standard Board and International Accounting Standard Board. IFRS 8-1 The Financial Accounting Board and the International Accounting Standards Boards both work together to develop and re-enforce the financial reporting standards for publicly held companies. In order to move fair value measurement for financial instruments certain steps need to be taken. One step is related guidance on measurement and enhanced disclosure requirements to inform financial statement users about the fair value measurements included in the financial statement. There are different standards for fair value measurements between the United States and other countries. Component depreciation is very important for companies in the United States and across the globe. Component depreciation is when...
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...4. In considering the rules based approach of GAAP and the principles based approach of IFRS we looked at GAAP first. GAAP provides application clarity, low risk, and for companies in the same industry there is easy comparability. These Rules, however, must be accounted for using these rules even if the information is misleading, uneasy to compare across industries and the risk increases when rules are not followed. IFRS allows us to consider best out of multiple ways to account for transactions, comparibility among companies across multiple industries, and it is easier to defend actions and positions by using the principles that were followed. That being said, we believe that the IFRS approach is needed over the US approach. We believe that the rules are put into place by the US approach and companies then take the steps necessary to get around them. We believe that principles should be used and there should be required disclosures to guide investors and shareholders and help them understand the principles that were used and the decisions made that were based on these principles. There is still need for solid framework for larger key issues, but we feel as though principles are the right way to go. To deal with inconsistencies, there would still be a few concrete rules laid out to govern however principles will be still be used. Lessees and Lessors will also be required to show equal and opposite assets and liabilities on their balance sheets for every and all lease without...
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...Outline Part 1 Background and Overview Part 2 US GAAP and IFRS Part 3 China GAAP and IFRS Part 4 Summary of Convergence Process Part 5 Pros & Cons of Convergence Part 6 The reasons for differences in accounting practice ww.ifrs.org + The International Accounting Standards Board + The International Accounting Standards Committee (IASC) Foundation + Objective – a single set of global financial reporting standards + Aim – convergence between national standards and international standards + IFRS Framework + IFRS SMEs + Supported by the Group of 20 Leaders (G20) who, at their September 2009 meeting in Pittsburgh, US. Country Status for listed companies as of April 2010 Argentina Required for fiscal years beginning on or after 1 January 2011 Australia Brazil Canada Required for all private sector reporting entities and as the basis for public sector reporting since 2005 Required for consolidated financial statements of banks and listed companies from 31 December 2010 and for individual company accounts progressively since January 2008 Required from 1 January 2011 for all listed entities and permitted for private sector entities including not-for-profit organizations Country China Status for listed companies as of April 2010 Substantially converged national standards European All member states of the EU are required to use IFRSs as adopted by the EU for listed Union companies since 2005 France Germany India Indonesia Italy Japan Mexico Required...
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...begun the process to migrate from General Accepted Accounting Principles (GAAP) to the International Financial Reporting Standard (IFRS). This migration has advocates for and against the change. A major change in the IFRS proposal is the accounting of leases. One noticeable aspect of the proposals involves classifying operating leases as assets. The proposed rule would, from the lessee perspective, consider all long term leases as assets and not as operating expenses.1 The tax implications of this change would be significant, long term operating leases are currently considered expenses. Since these leases are treated as current expenses and reduce income, they are not currently taxed. A financed lease, also known in the U.S. as a capital lease, is considered an asset and therefore flows to the income statement. A financed lease increases income and is therefore paid with post tax revenue and subsequently depreciated. 3 The current IFRS proposal would classify operating leases as expenses only if those leases are 12 months or less. This change would reclassify most leases under GAAP from operating leases to finance or capital leases under IFRS. These proposed changes could have wide ranging affects on real estate, automobile, aircraft, and medical and industrial equipment leasing.2 Adopting this change would simplify accounting for multinational corporations, since most of Europe has adopted IFRS. However, the ultimate effects could be extremely negative for investment...
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...IFRS vs. GAAP: What are the differences, how does it affect net income reporting and what difficulties may exist in mandating IFRS in the U.S. Introduction I propose to write a paper on some of the major differences which still remain between IFRS and US GAAP. Although the FASB and IASB along with the SEC have been working to converge the two accounting systems, many differences still exist. In particular I plan to show the effects on the reported net income of companies and highlight the difficulties of mandating the use of IFRS in the U.S. Resources abound on this topic, some include: Hughes S, Sander J. A U.S. Manager's Guide to Differences Between IFRS and U.S. GAAP. Management Accounting Quarterly [serial online]. Summer2007 2007;8(4):1-8. Available from: Business Source Complete, Ipswich, MA. Accessed November 7, 2014 SMITH L. IFRS and U.S. GAAP: Some Key Differences Accountants Should Know. Management Accounting Quarterly [serial online]. Fall2012 2012;14(1):19-26. Available from: Business Source Complete, Ipswich, MA. Accessed November 7, 2014. de Mesa Graziano, C., & Heffes, E. M. (2008). IFRS Section: Definition of Fair Value, One of the Differences Between U.S. GAAP and IFRS. Financial Executive, 24(10), 14 Romeo, G., & Bao, D. (2012). TEACHING INVENTORY USING U.S. GAAP AND IFRS: A COMPARATIVE PERSPECTIVE. Journal For Global Business Education, 1225-34. Siegel J., & Shim J. (2010) Accounting Handbook, Barron’s Educational Services,...
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...IFRS vs GAAP – differences in revenue recognition IFRS and GAAP in Canada are both principle-based frameworks with significant conceptual similarities, but where they differ drastically is in the application of those general principles. By looking at the detailed guidance of GAAP vs IFRS for processing various accounting transactions, one can start to embrace the magnitude of the disparity between the two sets of reporting standards. Revenue recognition principle illustrates the IFRS vs GAAP divergence. Under IFRS, the revenue from the sale of goods is recognized when the seller has transferred the significant risks and rewards of ownership to the buyer and no longer has control or managerial involvement over the goods. Canadian GAAP follows the same logic, but has more specific criteria underlying these principles such as: the existence of persuasive evidence of an arrangement, the occurrence of delivery or rendering of services, and whether the seller’s price to the buyer is fixed or determinable. By the same token, Canadian GAAP provides a detailed approach for revenue recognition for multiple-deliverable arrangements which is not specific to a scenario or industry; IFRS does not provide such detailed guidance, however, it does consider some specific scenarios. The Canadian GAAP vs IFRS distinction can be further seen in examining multi-deliverable arrangements. Canadian GAAP provides a detailed approach for revenue recognition for multiple-deliverable arrangements which...
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...Comparing IFRS to GAAP Teresa Shelton ACC/291 3/7/16 David Mobile Comparing IFRS to GAAP We’ve been learning, and comparing the differences between the IFRS and GAAP. How each is operated and the effects, it has in the accounting world nationally and internationally. Fair Value and Component Depreciation Fair value is the price that would be expected by the company to sell an asset or paid to change ownership of a liability in an orderly transaction between market members at the date of the measurement. All assets, liabilities, and equity instruments are measured at fair value. However the standards in which U.S. GAAP and IFRS require of fair value measurements are different. For instance an asset, liability, or equity instrument that is measured at fair value in U.S. GAAP will not always be measured at fair value in IFRS and likewise. The GAAP and IFRS have distinct developments to approach the measurement basis in other standards. There will be different accounting requirements used in the U.S. GAAP than IFRS for measuring the fair value of investments in investment company entities. Several of the disclosures about fair value measurements will be different for U.S. GAAP and IFRS. An example of this would be, IFRS does not require to distinguish between recurring and nonrecurring fair value measurements. In addition, because IFRS will generally not allow net presentation for products, the amounts that are disclosed...
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...Comparing IFRS and GAAP Vanessa Casey ACC/290 July 27, 2015 Comparing IFRS and GAAP As international business is increasing, people with financial responsibilities should be knowledgeable in the two primary accounting methods. The 2 primary accounting methods are GAAP, stands for Generally Accepted Accounting Principles, and IFRS, which stands for International Financial Reporting Standards. The Financial Accounting Standards Board set the GAAP which is used primarily in the United States and the IFRS is used in many other countries. It has been noted that the United States Security and Exchange Commission is planning to switch to IFRS in 2015. There are many differences between the accounting methods that could result in different reporting. However on the same note, they also have some features in common. When having a good understanding of both methods, this will allow the companies to make better business decisions that are flexible and effective. IFRS 2-1: In what ways does the format of a statement of financial or position under IFRS often differ from a balance sheet presented under GAAP? Accounts are required by the GAAP to be listed by liquidity. Cash would be listed first because it is a current asset whereas a shareholder equity would be last because it is a non-current asset. However, IRFS do not required accounts to be listed in a specific order on the financial statement. Therefore most companies report in reverse order of liquidity. The bottom line is providing...
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...Reporting Standards (IFRS) and the US Generally Accepted Accounting Principles (US GAAP). Convergence also seeks to establish understandability amongst users and enforceable by regulators (Erchinger, Melcher, 2007). The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) have been trying to implement a global acceptable standard for financial reporting since the end of 2002 onwards (Fogarty, 2011). However to this day in 2013 the convergence of both IFRS and US GAAP has yet to be completed and implemented. The likelihood of the convergence being completely finished and implemented seems possible but yet so far as both the IASB and FASB have already been trying for ten years to get it completed despite the hurdles they have endured. In November 2007 the Securities and Exchange Commission (SEC) voted 4-0 in favor of eliminating the requirements that forces foreign companies with U.S listings to reconcile their results with to U.S GAAP therefore companies with a year end of 2007 are no longer required to follow these set of principles (Fogarty, 2011). 2. Evaluate and describe the single most important difference between U.S. GAAP and IFRS rules, and explain your answer. The most important difference between U.S. GAAP and IFRS rules is that the U.S. GAAP is rules based accounting and the IFRS is principle based accounting. Each standard is different in terms of the amount of detail given in the guidance. The US GAAP (rules-based)...
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...GAAP and IFRS Convergence Kenneth DeWitte Strayer University 1. Describe IFRS and GAAP and what convergence means. The International Financial Reporting Standards (IFRS) is the accounting framework used by the European Union, Japan, Canada, and other world economic leaders. The IFRS is based on the tenets of understandability, reliability, and comparability. It is based off the International Accounting Standards (IAS) and had the opportunity to be built from accounting ideas and principles used across the world. In recent years it also has had the chance to look at the United States Generally Accepted Accounting Principles (GAAP) and modify the rules to enhance clarity and consistency, intentionally setting itself apart from U.S. GAAP. United States GAAP is an aggregate of rules that show how to account for transactions and also present the transactions with reliability, consistency, and full disclosure. This amounts to a level of clarity that even someone not very knowledgeable about business can make a confident decision when investing. These rules were brought together by the Financial Accounting Standards Board (FASB). It is more specific than the IFRS requiring less interpretation and more consistent action taken by all businesses, leading to comparability through financial statements. The convergence of these two accounting frameworks is a must for both foreign and domestic businesses. There are some problems between the two systems coexisting. This has led to...
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...Comparing IFRS to GAAP Essay Bruce Liddy 8/11/15 ACC/291 IFRS 8-1: What are some steps taken by both the FASB and IASB to move to fair value measurement for financial instruments? In what ways have some of the approaches differed? Fair value measurements have the power to provide users of financial statements with an accurate depiction of the value of the company’s assets. IFRS and GAAP are strict in the fact that they require the firms to include information regarding fair value measurement practices in the notes of financial statements. When following either system, the companies will be required to report assets at either book value or fair value. The outcome really just depends on the situation. All assets in the same class must receive the same valuation treatment. When it comes to the value of receivables, the IRFS uses a two-tiered method that analyzes individual receivables, as well as, looks at receivables as a whole to determine if there is any impairment. IFRS 9-1: What is component depreciation, and when must it be used? Component depreciation happens when an asset has fundamentally different parts that should be depreciated with different treatment. Under IFRS, firms are required to use component depreciation if the parts of the asset offer varying patterns of benefit. The reasoning behind this is that it provides a clearing of the asset’s book value. This method is also permitted under GAAP, but U.S. companies rarely use it in practice (Ernst & Young...
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...the differences between Generally Accepted Accounting Principals (GAAP) and the International Financial Reporting Standards (IFRS). Currently, the majority of countries in the world follow International Financial Reporting Standards guidelines; however, the United States still uses Generally Accepted Accounting Principals. This topic has been a main focus because there is a plan for convergence between the two frameworks in the near future. The United States accounting system will undergo drastic changes when this occurs, but in the long-run the idea is to simplify the accounting procedures around the world. The main difference between GAAP and IFRS is that GAAP is considerably rule-based, whereas IFRS is more principal-based which means IFRS has room for interpretation. The specific differences are far too many to cover in a short presentation, however, an explanation of some major differences are mentioned below. In certain instances, GAAP and IFRS follow different approaches for the determination of specific amounts as well as how these amounts are recognized in financial statements and within the notes. One of these instances occurs in the measurement of inventory. Unlike GAAP which accepts the FIFO, LIFO, and weighted-average methods, IFRS does not accept LIFO. Also, when inventory is recorded on the balance sheet, IFRS requires that it be reported at the lower of historical cost or Net Realizable Value. GAAP, on the other hand, requires inventory to be reported at the lower...
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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 For more 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...
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...IFRS and GAAP Convergence Mercy Hudson Strayer University I have read and understand Strayer University’s Academic Integrity Policy. I promise to conduct myself with integrity in the submission of all academic work to the University and will not give or receive unauthorized assistance for the completion of assignments, research papers, examinations or other work. I understand that violations of the Academic Integrity Policy will lead to disciplinary action against me, up to and including suspension or expulsion from the University. I understand that all students play a role in preserving the academic integrity of the University and have an obligation to report violations of the Academic Integrity Policy committed by other students. Chevron Corporation, an American multinational energy corporation is active in more than 180 countries. Chevron is one of the world’s six ‘super major’ oil companies. For the past five years, Chevron has been continuously ranked as one of America’s five largest corporations. Chevron’s headquarters is in San Ramon, California (Fox, 2012). It is engaged in every aspect of the oil, gas, and geothermal energy industries, including exploration and production; refining, marketing and transport; chemicals manufacturing and sales; and power generation. Chevron was originally known as Pacific Coast Oil Company in 1979, where they made their oil discovery in Pico Canyon north of Los Angeles, California (2012)....
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