Question

Within the global environment there is much discussion regarding moving from US GAAP (Generally Accepted Accounting Principles) to IFRS (International Financial Reporting Standards). We know that corporations are global now more than ever, which results in a diverse group of professional accountants worldwide working together for a common goal, which is to report information for both internal and external users. This diversity does result in variations in practice however the principles and guiding rules and regulations proposed under IFRS will allow for uniformity on a global basis. This move to IFRS from GAAP is not yet finalized however much debated.

Prepare a PowerPoint presentation with a minimum of 7 slides with an abstract for references and a reference slide.

• Articulate the positions on moving from US GAAP to IFRS.
• Build an argument in an influential way to include but not limited to a discussion on the similarities and differences between GAAP and IFRS specifically around the potential effects on the stockholder’s equity section of the Balance Sheet.
• Articulate at minimum three advantages and disadvantages of adopting IFRS specific to the Stockholder’s Equity section of the Balance Sheet.

Answer 1

International Financial Reporting Standards (IFRS) is a single set of high quality, understandable and enforceable global accounting standards developed and maintained by the International Accounting Standards Board.

It has been a regular practice of the companies to grow by raising funds from financial institutions, private investors and stock markets within the local country. Thus the provider and acquirer of the capital were from the same geographical and regulatory environment. Therefore, the inventor found it easy to read and interpret the capital acquirer's financial statements before making investment decisions.

However, the companies have grown by leaps, through merger and acquisitions; wherein two separate entities came together and formed one large entity that is more competitive and cost efficient. Furthermore, today the business environment is very different and technology has advanced. Many economics have removed restrictive trade barriers and liberalised financial market. This has interconnected the capital market globally and accelerated the pace of cross border transactions. One significant factor to decide on whether to go ahead with global merger and acquisitions is to understand and interpret the financial statements of the acquirer company. This can be possible easily and quickly only if the inventors and acquirer follow similar accounting standards.

IFRS also provides investors and other users of financial statements with the ability to compare the financial performance of publicly listed companies on a like-for-like basis with other international peers.

Differences between IFRS and US GAAP (Illustrative)

1. Intangible assets are capitalised under IFRS, if meets the recognition criteria. In US GAAP in general it is expense out.

2. Under IFRS impairment of intangible having infinite life involves comparing the carrying amount of the assets with its recoverable amount. Under US GAAP carrying amount of asset is compared with its fair amount.

3. IFRS does not permit last in first out (LIFO) method for valuing inventories. US GAAP allows the use of last in first out (LIFO) method for valuing inventories.

4. Reversal of impairment (for assets other than goodwill) is permitted under IFRS. Under US GAAP the same is not permitted.

5. Under IFRS re-measurement of net defined liability/asset (Employee Benefits) are recognised in other comprehensive income and not subsequently recognised in profit and loss. Under US GAAP an entity has the option of either recognising the gain or loss in the period, within the statement of operation or deferring the gain or loss through use of the corridor approach.

Advantage of adopting IFRS:

1. It allows for greater comparability

2. It is beneficial to new and small investors

3. It creates more flexiility

Disadvantage of adopting IFRS:

1. It require high Cost.

2. It can be proven to manipulation.

3. it is not globally accepted by all the countries.