Question

Many experts argue the need for one global set of accounting standards. What are some of the differences between International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP)? What are some advantages and disadvantages of adopting IFRS in the US? Do you personally think this is a good or a bad idea? Why?

Your initial posting should be 250-500 words and must be submitted by Thursday, 11:59 pm, of this week.

By Sunday of this week, respond to two or more of your classmates, or your instructor, in any of the following ways:

• Build on something your classmate said
• Explain why and how you see things differently
• Ask a probing or clarifying question
• Share your understanding of your classmate's posting
• Offer and support an opinion with peer-reviewed sources or industry leading practices
• Expand on your classmate's posting by providing constructive feedback

Refer to the discussion grading rubric for more information on expectations of class discussions.

Answer 1

GAAP and IFRS are basicaly diffrance due to following reasons.

1.

IFRS is used in more the 100 countries around the world. while GAAP is only used in the USA. companies that oprated in US may have more complexities in their accounting

2

GAAP is basically rule base system, it have specific rule for specific industries while IFRS is principle base rules . it have common rule for all industries.

3.

For inventory control , GAAP allowed all the methods ( FIFO, weighted average , specific cost methods) including Last In First Out (LIFO) . while IFRS not inclued LIFO method for inventory control as it shows artificially low income , and not reflect actual finicial position of company.

4.

Both methods allow inventories to be written down to market value. However, if the market value later increases, only IFRS allows the earlier write-down to be reversed. Under GAAP, reversal of earlier write-downs is prohibited. Inventory valuation may be more volatile under IFRS.

ADVANTAGES OF GAAP

1. FOR DAY TO DAY ACCOUNTING : GAAP helps the accountants who prepare day-to-day accounting activities and records them. Since they are following the various treatments in accounting according to the guidance or principles formulated in GAAP, no doubt discrepancies arise, regarding the accounting treatment of various types of transactions. Practically, it helps the accountants to maintain accounts properly.

2. WINDOW DRESSING EFFECT : Window dressing in Balance Sheet which are done by the accountants presents a distorted picture to the analyst. The same can be stopped or avoided showing the application of GAAP in maintaining accounts.

3.REDUCES FRAUD AND MANIPULATION: accounts are prepare as per directive principle of GAAP. so , its dificult for community fraud and manupilation in accounts.

4. ACCEPTABILITY OF ACCOUNTS : if the accounts are prepared by GAAP accepte by all entity.if accounts are maintained as per the principles of International Accounting Standards, they are widely accepted all over the world for the purpose of analysing the financial statements on which the financing decision depends.

DISADVANTAGES OF GAAP

1. DIFFICULT TO APPLY : GAAP is complex in nature . so it is not only costly but it require lot of time to prepare . 2. FIX PRINCIPLES : GAAP is rule base. so it have fix principles which is not alter and not flaxible .in todays dynamic world that rules may not be perfectly match

3. PROPER INTERPRETATION NOT POSSIABLE EVERYTIME : GAAP is set by group of experts .for proper interpretation.but it create confution regarding the meaning and this proper interpretation in some circumstances.

4. KNOWLEDGE OF ACCOUNTING NOT DEVELOP BY ACCOUNTANTS : GAAP have specific rule , that have to follow by all accountants. so, accountants do not find any intrest in develping their khowledge.

WORLD COMMON ACCOUNTING STANDARDS

  The expected benefits of global accounting standards are compelling. The use of one set of high quality standards by companies throughout the world has the potential to improve the comparability and transparency of financial information and reduce financial statement preparation costs. When the standards are applied rigorously and consistently, capital market participants will have higher quality information and can make better decisions. Thus markets allocate funds more efficiently and firms can achieve a lower cost of capital.

A fundamental question is whether IFRS have changed the information available to market participants in a way that is beneficial, that is, are markets more efficient when IFRS are used? We expect that IFRS information provided by firms to market participants may differ significantly from information based on prior national GAAP, due to differences between requirements of national standards and IFRS. The extent to which the change to IFRS provides more useful information that translates into benefits observable in capital markets is a question currently being addressed in research. Some studies gather evidence about changes in market liquidity and firms’ cost of capital,