There are many differences regarding the balance sheet under GENERAL ACCEPTED ACCOUNTING PRINCIPAL (GAAP), and international...

There are many differences regarding the balance sheet under GENERAL ACCEPTED ACCOUNTING PRINCIPAL (GAAP), and international Financial Reporting (IFRS) l. Do you think the US. companies should follow the IFRS? Why or why not? 300 words about and own words please . Thank you!

Expert Solution

In my opinion the U.S. companies should not follow IFRS (International Financial Reporting Standards). The primary difference between IFRS and GAAP is the accounting for securities that hold the characteristics of equity and debt, such as convertible debt. The U.S. GAAP allows the total proceeding amount of convertible debt to be recorded as long term debt. Under IFRS, convertible bonds would be separated or bifurcated into the component of equity, which means the value of the conversion option of the issuance of bond and the debt component. GAAP rules for the recognition of revenue to be detailed related to the specific industries, such as software and real estate. On the other hand, IFRS guidance would be universal. Also the SEC has issued certain broad guidance for public companies in America in regard to the recognition of revenue.

One of the main hurdles in adopting IFRS with the United States is that LIFO is not permitted under IFRS. The main cause that the LIFO system is controversial is that the inventory's last items tend to age and therefore would not be potentially become obsolete. Moreover it provides a “tax holiday” to entities as they can report lower net income, and as a result pay lower taxes when prices of inventory increases and inflation is on the rise. America may also resist IFRS as it is very difficult to have a market incentive in the preparation of the IFRS financial statements. The businesses might believe that the huge high costs associated on the adoption of IFRS outweigh the benefits. Moreover IFRS is not accepted globally. Furthermore IFRS is prone to manipulation because the entities would apply only those methods as that they wish, and it may lead to unreliable financial statements as the reports show only desired results, which leads to the profit manipulation

ekkarill92 answered 1 year ago

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