Question

The current guidelines for companies in the United States is GAAP while many areas of the world have adopted IFRS. The SEC is in favor of a single accounting standard. Your company is trying to decide which guidelines to follow. What factors should your company consider in determining which set of standards it should follow? What advantages and disadvantages do you see with following each method?

Answer 1

Ifrs is currently adopted world wide as a global standard more than 120 countries worldwide have either adopted ifrs or converged towards ifrs.

Significant difference between ifrs and us gap.

1. Consideration of data gaps.

2.consolidation of additional entities.

3. Consideration of accounting policy choice.

Pros of GAAP:-

Gaap reduce the risk of fraud as compare IFRS because it provides rules based accounting principles.

Implementation of gaap is less costly as compare to ifrs because of it expert of gaap easily available as compare to IFRS .

Recognizing transaction on based on accrual method and so record all transaction when they earned.

Cons of gaap :-

Under gaap asset are recorded on historical cost so it do not show true picture accounts as compared to IFRS which follow fair value concept.

Different countries uses different gaap principle , so the comparison between financial statement become difficult.

Pros of IFRS:-

IFRS will save money , as more companies go global ,they would not have to spend money doing two set of books.

Being principle based , IFRS allows more leeway in how companies can portray their financial performance.

IFRS will make cross border investments easier.

Cons of IFRS :-

Not many U.S schools teach IFRS.

Inconsistency in ifrs such as how research cost are explained and it's tendency to allow higher earnings statements need to be worked out.

Small and medium sized firms may be unfairly hit with extra cost just as they were with the sarbanes-oxley Act.