Question

Find the financial statement of a company following U.S. GAAP and another following IFRS. Provide a screenshot of their balance sheet disclosures of Property Plant and Equipment sections. Explain 1) how they are similar and 2) how they are different. Explain why the legal culture in the U.S. may be different in other countries when explaining the reason for the dissimilarities.

Answer 1

The Balance Sheet :

The way a balance sheet is formatted is different in the US than in other countries. Under GAAP, current assets are listed first, while a sheet prepared under IFRS begins with non-current assets.

Inventory Valuation Methods

GAAP and IFRS contrast in how they handle inventory valuation, too. Three methods that companies use to value inventory are FIFO, LIFO, and weighted inventory.

• FIFO stands for First In First Out. This inventory valuation method follows the natural flow of inventory, assuming that the first items in inventory (i.e. the oldest) are the first sold.
• LIFO, or Last In First Out, takes the opposite approach of FIFO. Under this method, the last items to arrive in inventory (i.e. the newest) are assumed to be the first sold.
• Weighted average looks at the weighted average cost of items remaining in inventory at the time of an associated sale, which yields a figure that can then be used to value ending inventory and the related cost of goods sold.

In the US, under GAAP, all of these approaches to inventory valuation are permitted, while IFRS allows for the FIFO and weighted average methods to be used, but not LIFO.

In GAAP there is only one way to initially record a fixed asset and that is the cost method. The cost method involves recording the acquisition cost of the fixed asset, plus the costs of bringing the fixed asset to the condition and location required for its use. That would include interest on any loans, physical construction of the asset, demolition of any preexisting structures, renovation of a preexisting structure, administrative and technical activities in designing the asset and obtaining permits, and administrative activities incurred during construction.

In IFRS an entity should record the initial costs of the fixed asset as its cost using essentially the same criteria as GAAP. There is a difference, though, in what IFRS considers to be costs of the fixed asset in the condition and location for its use. Some of those are benefits of employees constructing the asset, the purchase price, dismantling of items at the site, import duties, installation and assembly costs, nonrefundable purchase taxes, professional fees, site preparation, testing costs and wages.

US GAAP

IFRS

The Difference in Culture of US from Other countries in Financial accounting point of View.

Research suggests that cultural differences cause accountants in different countries to interpret and apply accounting standards differently. This research reveals that two accounting values directly influenced by national culture are conservatism and secrecy, which affect the measurement and disclosure of financial information in financial reports and have the greatest potential to affect cross-border financial statement comparability. The underlying framework helping to explain these findings is based upon one of the largest crosscultural surveys ever conducted. Social psychology researcher Geert Hofstede (Culture’s Consequences: Comparing Values, Behaviors, Institutions, and Organizations Across Nations, 2nd Edition) collected data on cultural values from approximately 116,000 employees of a multinational company located in 50 countries and three regions around the world. He identified four cultural dimensions that reflected core values and helped explain general similarities and differences in cultures.