Question

If you were the CFO for a $10 billion-a-year international company headquartered in Ireland, which accounting rules would you recommend your company to follow: U.S. GAAP or IFRS? Are these rules comparable? What are the major differences between the two accounting standards? What was your rationale for choosing a rule?

Answer 1

I would recommend IFRS to CFO of such a billion dollar corporation. The rules laid down between IFRS and U.S. GAAP are comparable however the major difference between the two is that the IFRS is principal based compared to U.S. GAAP which are rule based standard. The IFRS record the transaction facts, whereas the US GAAP record theory based notes for recording transactions. Another difference is that IFRS is a control model whereas as US GAAP is risk and reward model.

Rationale for choosing the IFRS is that

1. Comparability - Adoption of IFRS will enable company to present its financial statements on the same basis as its competitor. If every country has different set of financial standards under which operations for a international company is present it will be difficult to compare in absence of IFRS. Under IFRS the financial statement for all the operations situated in different countries can be comparable.

2. IFRS presented financial statements are internationally understood and hence will provide an insight to investor and public.

3. IFRS adoption will help in bringing efficiency and cost savings to a company which has multiple subsidiaries in different countries, thereby helping the company to improve their position in negotiation with credit institutions thereby reducing the cost of borrowings because of the positive effect the IFRS has on credit ratings.

4. It will also help company to initiate cross border partnerships, cross border acquisition and develop cooperation agreement with other foreign entities.