The Differences Between International Financial Reporting Standards Ifrs And Current U S Gaap Accounting Essay

The Differences Between multi case Financial reportage Standards Ifrs And Current U S Gaap score EssayThe goings among world-wide Financial inform Standards (IFRS) and on-line(prenominal) U.S. gener solelyy accepted history principles argon numerous. worldwide Financial Reporting Standards (IFRS) argon principles- base Standards, Interpretations and the Frame gain (1989) adopted by the outside(a) be Standard Board (IASB). M whatsoever of the threadb ars forming part of IFRS be cognise by the older name of International account Standards (IAS). IAS was issued surrounded by 1973 and 2001 by the Board of the International Accounting Standard delegation (IASC). On 1 April 2001, the parvenue IASB took over from the IASC the responsibility for pr morseli go bying International Accounting Standards. During its commencement exercise meeting the new Board adopted existing IAS and SICs. The IASB has continued to split up precedents c altogethering the new specimens IFRS. chiefly Accepted Accounting Principles (generally accepted invoice principles) is a name utilise to refer to the standard mannequin of guidelines for monetary accountancy customd in any given jurisdiction which are mainly know as Accounting Standards. generally accepted account principles includes the standards, conventions, and rules accountants follow in recording and summarizing transactions, and in the preparation of monetary statement.U.S. generally accepted history principles and IFRS differ in key ways, including their constitutional premise. At the highest level, U.S. generally accepted method of accounting principles is to a greater extent of a rules-based trunk, whereas IFRS is much principles-based. This distinction whitethorn prove more difficulty than it initially appears, beca utilisation most(prenominal) accounting and finance professionals in the U.S. induce been schooled in the rules of U.S. generally accepted accounting principles. The overr iding littleon from their socio-stinting classs of study and work is this If you give birth an issue, look it up. Under U.S. GAAP, voluminous guidance attempts to oral communication intimately every conceivable accounting problem that might arise. And if that guidance doesnt exist, it generally is created. On the opposite hand, IFRS is a far shorter volume of principles-based standards, and consequently requires more ruling than Ameri dissolve accountants are accustomed to.Companies entangled in the exploration and development of crude oil and natural gas have the survival of choosing in the midst of cardinal accounting approaches the successful efforts (SE) rule and the full toll (FC) system. These differ in the treatment of specific operating expenses relating to the exploration of new oil and natural gas reserves.The ease sheet includes items that differ between International Financial ReportingStandards and Generally Accepted Accounting Principles volition be add ressed first. Balance sheet items include pluss (inventory, property, plant and equipment), liabilities (accounts account payable and opposite(a) marrows owed) and equity (ownership interest, usually in the form of stock).Inventory is any item open for barter or use in the return of an item that leave be sold. In valuing this inventory, GAAP allows for First-In-First-Out, Last-In-First-Out, Moving add up and Weighted Average. These are the quadruplet main methods used. IFRS does non allow the last in first out method. In times of increasing prices and equals, inventory scratch may go from apply and inventory valuation method other than LIFO. These inventory network result in improved reported earnings, but because the inventory profits are taxed, they reduce a telephoners net cash flow. Depending on the formation used, inventory values, profits and taxes trick be affected. To give you or so examples, the monetary statements of a company using the LIFO approach a s foreign to FIFO generally reflect* Conservation profits, because LIFO buffers the effects of inflation.* check matching of current cost with current revenue.* Lower liquidity, that is, a degrade current ratio.* Lower equity position, that is, a higher debt-to-worth ratio. (Gibson)IFRS takes this one filling away. In addition to this, IFRS required that the same formula be utilize to all inventory of a similar nature. GAAP allows for several(predicate) methods to be used.As throttle retirement during the toil of inventory is accounted for as a cost of the inventory using IFRS rules. Whereas, GAAP allows for it to be added to the carrying amount of the property, plant or equipment used to produce the inventory. With IFRS this cost volition stay with the fit sheet. GAAP would move it to depreciation which lowers earnings but increases free cash flow.A write-down of an asset is reducing the book value if it is over verbalize compared to current commercialise values. If a ne ed arises to reverse a write-down, IFRS allows it and GAAP does not. GAAP does not allow the revaluation of property, plant and equipment. It uses historical cost. IFRS, on the other hand, allows either historical cost or revalued amount (fair value at date of revaluation less subsequent accumulated depreciation and wrong losses).The rules concerning residual value have some differences too. Residual value is the amount you expect to be able to sell a fixed asset for at the end of its useful life. IFRS calculates it as the current net throw price and it may be change upwards or downwards. GAAP calculates it as the discounted present value and it may only be adjusted downward.Next, items such as depreciation and demands leave be addressed. Since these items are expenses, they pull up stakes affect the income statement. Depreciation is an expense that reduces the value of an asset as a result of wear and tear, age or obsolescence.IFRS requires more work when deprecatory items . Depreciation of assets with differing patterns must be depreciated separately. This means that each item would have to be accounted for separately. GAAP allows this but it is not required. With GAAP, all the depreciation would be able to be grouped together and listed as a organic requiring fewer entries. When capitalizing an asset, GAAP only allows interest. IFRS includes interest, certain ancillary cost and exchange differences that are regarded as an adjustment of interest. Being able to include these costs provide increase the value of the asset and provide for more depreciation. grunge and building leases is another topic where differences occur. IFRS considers land and building separately and GAAP considers them as a single unit unless land represents more than 25% of the total fair value.A couple of other items worth mentioning are contingent assets and marvelous items. Contingent assets are assets in which the possibility of an scotch benefit depends solely upon future events that cant be makeled by the company. overdue to the un demonstration of the future events, these assets are not placed on the balance sheet. However, they can be found in the companys fiscal statement notes. These assets, which are a great deal simply rights to a future potentiality claim, are based on past events. An example might be a potential settlement from a lawsuit. The company does not have enough certainty to place the settlement value on the balance sheet, so it can only talk round the potential in the notes. IFRS does not bring in contingent assets, GAAP does.Extraordinary items include the sales event of the subsidiary or the payment of a lawsuit. Extraordinary items are a liability that is foreign or infrequent in its occurrence. IFRS interdicts extraordinary items and GAAP allows them. Although rare and infrequent, extraordinary items can be substantial and be able to include them can have an impact on your financial statements.As you may be able to t ell, both have their advantages and disadvantages where compared to the other. in that location are some items in which benefits are drawn from IFRS and others that GAAP provides. There is an ongoing effort to address the differences and come to a consensus. At some point, the two different set of rules may be combined into one universal system.Works CitedDeloitte. IFRS and US GAAP A Pocket Comparison. July 2008. IASplus.com.Gibson, S.C. LIFO vs FIFO A drive out to the Basics. Oct. 2008. The RMA Journal.Hughes, S.B. and Sander, J.F. A U.S. Managers Guide to Differences Between IFRS and U.S. GAAP. 2007. Management Accounting Quarterly.Kumar, S. Differences Between IFRSs and US GAAP. 26 July 2006. Caclubindia.PriceWaterhouseCoopers. IFRS and US GAAP Similarities and Differences. Sept 2008. PWC.com.InventoryIFRS study on inventory can be found in IAS 2 and in Chapter 8 of the Wiley IFRS 2010 book. GAAP information on inventory can be found in ASC 330 and in Chapter 9 of the Wiley GA AP 2010 book.GAAP commentary (ASC 330-10-20)The aggregate of those items of tangible personal property that have any of the spare-time activity(a) characteristics a.) held for sale in the ordinary course of championship b.) in care for of toil for such sale c.) to be currently consumed in the production of goods or services to be available for sale.IFRS Definition (IAS 2)Items that are held for sale in the ordinary course of business in the process of production for such sale or in the form of materials or supplies to be consumed in the production process or in the rendering of services.GAAP IFRSAllowable be methods include FIFO, average cost, and LIFO Allowable costing methods include FIFO and the weighted-average cost. LIFO costing is prohibited Presentation at lower of cost or market required Presentation at lower of cost or net doable required further in rare instances (mining of gold, etc.) are presentation Certain defined touchs, including farming(a) products, at fa ir value in excess of cost allowted permit reporting at fair value in excess of substantial cost Lower of cost or market adjustments cannot be reverse Lower of cost or market adjustments must be change at a lower place defined conditions Recognition in interim periods of inventory losses from market Recognition in interim periods of inventory losses from market declines that sensibly can be expected to be restored in the declines that reasonably can be expected to be restored in the fiscal year is not required fiscal year is required Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale (IAS 2).Presently, there are two sets of accounting standards accepted for international use U.S. GAAP and the International Financial Reporting Standards (IFRS).US GAAP or simply GAAP are accounting rules used to prepare, present, and report financial statements for a wi de variety of entities, including globely-traded and privately-held companies, non-profit organizations, and governments. The Financial Accounting Standards Board (FASB) is a private, not-for-profit organization whose primary election purpose is to develop GAAP within the join States in the state-supporteds interest. The Securities and Exchange foreign mission (SEC) designated the FASB as the organization responsible for shot accounting standards for public companies in the U.S.On the other hand, the second set of accounting standard is IFRS (International Financial Reporting Standards), which is issued by the International Accounting Standards Board (IASB), based in London. Nearly 100 countries use it or coordinate their financial instruments. These countries or groups of countries include the European Union, Australia, and South Africa. musical composition some countries require all companies to adhere to IFRS, others merely allow it, or try to coordinate its own countrys s tandards to be similar. The IASB is works toward this goal in a partnership with some of the most influential accounting standard-setters crossways the globe.The globoseization of business and finance has led more than 12,000 companies in more than 100 countries to adopt IFRS. In the United States, the Securities and Exchange Commission (SEC) has been victorious steps to set a date to allow U.S. public companies to use IFRS, and perhaps make its ad pickaxe mandatory. In fact, on November 14, 2008, the SEC released for public comment a proposed roadmap with a timeline and key milestones for adopting IFRS, beginning in 2014.IFRS website states that the product between IFRS and US GAAP brings some benefits. Growing interest in the ball-shaped acceptance of a single set of robust accounting standards comes from all participants in the capital markets. Many multinational companies and national regulators and users co-occurrence it because they regard that the use of common standar ds, in the preparation of public company financial statements, will make it easier to compare the financial results of reporting entities from different countries. They believe it will help investors better understand opportunities. Large public companies with subsidiaries in multiple jurisdictions would be able to use one accounting language company-wide and present their financial statements in the same language as their competitors.Another benefit some believe is that in a authentically global economy, financial professionals, including CPAs, will be more mobile, and companies will be able to easily respond to the human capital needs of their subsidiaries round the world.According to aicpa.com, the most important specific differences between IFRS and U.S. GAAP are IFRS does not permit Last In, First Out (LIFO) IFRS uses a single-step method for impairment write-downs rather than the two-step method used in U.S. GAAP, do write-downs more likely IFRS has a different probability threshold and metre objective for contingencies IFRS does not permit debt for which a covenant violation has occurred to be classified as non-current unless a lender waiver is obtained before the balance sheet dateBased on my research, I have read from some SEC and AICPA critics and also individuals in favor of the introduction of IFRS in U.S. Most of common critics against the adoption of IFRS focus on similar areas. Remi Forgeas, a CPA states in article published in AICPA website his critics The usual difference noted between GAAP and IFRS is that the former is rule-based whereas the latter is principle-based. This principle-based concept generates concerns that it will be more difficult for a preparer to defend its position in case of litigation. Another point for discussion is the risk to see the standard setter becoming less independent and/or that the U.S. having less control on their accounting standards. The cost and the duration of the transition are often presented as a major hurdle, especially in this difficult stinting environment. The complexity of the transition and then its cost will depend for the most part upon the completion of the crossway. The crossroad process is expected be consummate in 2011. Assuming the SEC decides on 2015 for the year of transition, changes for companies should be less complex, since both standards will be foregatherd. Finally, the last issue is the human ingredient are the preparers, users, auditors experienced enough in IFRS? There is no query that specific training will be required to ensure IFRS are known by various categories of slew dealing with IFRS. Focusing on the situation today is probably not the right approach square there is today a lack in knowledge, but the situation is evolving rapidly.People favoring the introduction of IFRS in the U.S. states that the harmonization of financial reporting near the world will help raise the confidence of investors, generally, in the information they are us ing to make their decisions and assess their risks. The opposite is perhaps the clearer case. If accounting for the same events and information produces radically different reported numbers, depending on the system of standards that are universe used, then it is self-evident that accounting will be increasingly discredited in the eyes of those using the numbers.For those companies with joint listings in both America and another country, there should be substantial savings, especially in terms of preparation costs. Avoiding the burdensome U.S. GAAP reconciliation statement, required at present, would be a worth age prize.The good reasons why convergence with the U.S. should be pursued has been noted. There is, however, a downside to all of this for IFRS galore(postnominal) people also believe that U.S. GAAP is the gold standard, and something will be confounded with the full acceptance of IFRS. Other disadvantages are as follows Extra costs in the preparation of financial statem ents by all IFRS companies implementing new requirements and restating antecedently reported numbers. Changes have to be communicated and understood by all of those involved in preparing the accounts, auditing them and using them. Translations of the amended standards are required for the many languages in which IFRS are applicable. The changes have to be approved by the various national endorsement authorities and often incorporated into their legal systems. Continuous stepwise changes undermine the reputation of IFRS. Some might justifiably ask why high quality standards need such frequent amendments.WORKS CITEDAICPA IFRS Resources ifrs.com celestial latitude 11, 2010. WebAccounting Standard Codification fasb.org December 11, 2010. WebEpstein, Barry. Nach, Ralph and Bragg, Steven GAAP 2010. New Jersey Wiley, 2009. Print.United States Accounting Standards vs International Accounting StandardsJune 21, 2009 originationThis research project will inform the reader of the difference b etween the United States accounting standards and International accounting standards. The United States uses the Financial Accounting Standards Board (FASB) to issue financial reporting procedures. The International Financial Reporting Standards (IFRS) are issued by the International Accounting Standards Board (IASB). There are proposals for the United States to adopt the International standards. Financial reporting procedures are debated to the highest degree the United States using the Generally Accepted Accounting Procedures (GAAP) or following the global procedures. This project will also examine, compare, and contrast this debate.Discussion of depicted objectIn an article by Heidi Tribunella (2009),U.S. GAAP is considered rules based. Rules-based accounting standards, on the other hand, give strict rules that must be adhered to in order to in good order account for particular transactions. For example, lease accounting in the United States gives four criteria for determining if a lease is a capital lease. If a lease contains any of the following, then it is considered a capital lease and must be accounted for as such 1 ) a bargain purchase option 2) ownership transfers at the end of the lease 3) minimum lease paymentswith a present value of at least 90% of the FMV of the asset or 4) a lease length of at least 75% of the economic life of the asset. This is an example of very specific rules foraccounting for leases (Tribunella, 2009).Tribunella (2009) goes on to condone International accounting standards,International Financial Reporting Standards (IFRS) are issued by theInternational Accounting Standards Board (IASB), which was created in 200l. Previously, the International Accounting Standards Committee (IASC), founded in 1973, issued International Accounting Standards (IAS). When the IASB was created, it adopted the IAS and continued the work of the IASC (Tribunella, 2009).Gary K. lowly and Wayne B. Thomas (2004) explain the influence of the IASB on the global reporting standards including the U.S. GAAP.In 2000, the International Organization of Securities Commissioners (IOSCO), of which the SEC is a member, recommended to member countries that IASC standards be used in cross-border offerings and listings. The enforcement of International Financial Reporting Standards (IFRS) by exchange regulators will be crucial to the eventual acceptance of the IFRS around the worldIn October2002, the IASB and the Financial Standards Accounting Board (FASB) issued a memorandum of understanding, which formally stated their commitment to the convergence of IFRS and U.S. GAAP (Meek and Wayne, 2004).Jose Marrero and Thomas Brinker (2007) explain the efforts of the IASB and the FASB to merge their gives. over the last two decades, research indicates that developing a framework of globalaccounting standards favors the recognition of culture. Cultural differences will impact a nations concluding consensus regarding accounting standards. However, a fter years of discussion, a solution to the dilemma of conflux culture or international cultures and accounting standards has yet to be found. Currently, the International Accounting Standards Board (IASB) and the FASB are working on a principle-based framework for global financial reporting standards the cooperation of both the IASB and FASB will yield a uniform body of accounting standards allowing financial and investment advisers to view global investment opportunities on a more level playing palm (Marrero and Brinker, 2007). They also point out why certain business owners may not indispensability to follow global practices, Further, business owners are averse to abandon their localized business practices to appease the accounting standards imposed on the multinational companies, much less their bookkeeping and financial reporting standards to the jurisdiction of a U.S.-dominated accounting standard board (Marrero Brinker, 2009).David Bogoslaw (2008) talks about the converg ence in further detail,The uproar over fair value accounting practices, which some critics have blamed for the depths of the global financial crisis, threatens to sink a long-sought move by countries around the world toward a single set of international financial reporting standards (IFRS). The U.S. Financial Accounting Standards Board (FASB) has been working with Londons International Accounting Standards Board (IASB) since 2002 toward what accounting professionals call convergence. The Securities Exchange Commission (SEC) is expected to announce its road map for conversion sometime this month, which will probably include early adoption in 2010 for about cx of the largest U.S. companies with business operations throughout the world. The key difference between U.S. Generally Accepted Accounting Principles (GAAP) and IFRS is that U.S. standards are based on explicit rules while the international standards reliance on principles gives companies more room to use their judgment in dec iding how to recognize revenue and other key metrics. toleration of IFRS would also probably trigger a big tax ascending for U.S. companies, which would no longer be able to use the last-in-first-out LIFO inventory accounting method, which doesnt exist under the international standards. The LIFO method assumes that goods purchased most latterly are sold first and that the remaining items have been purchased at sooner periods, yielding a lower gross profit during high-inflation periods than the first-in-first-out accounting method (Bogoslaw, 2008).The main debate over switching accounting practices is further explained by Bogoslaw (2008) by stating,The debate over switching to accounting standards based on something less explicit than rules comes down to questions about whether the less explicit standard will provide adequate protection against lawsuits, says James Leisenring, director of expert activities in research at the FASB. You cant understand the debate about gratuitous vs. obligatory guidance (within IFRS) until you understand the litigation system in the U.S., where companies are more concerned about getting sued than in other parts of the world, he says. What its really about is safe harbors. What (IFRS skeptics) really want to know is if I do it in a particular way, am I home free or not? The explicit rules under GAAP may appear to offer safety, but the downside is there are so many of them that the odds of missing one or two are greater, he says. From Leisenrings perspective, the big accounting firms that are drawn to IFRS believe theyll get sued less since it will be harder to point to their mistakes. White agrees that some companies like the freedom allowed under IFRS to interpret standards to suit their convenience, which undercuts auditors ability to prohibit certain accounting choices (Bogoslaw, 2008).Bogoslaw (2008) explains two sides of the criticism this switch has been receiving. Many are for it, but some are against it.The most strid ent critics of migration to IFRS argue that the primary goal of the SEC and U.S. Treasury Dept. is attracting capital to U.S. markets, rather than ensuring that the highest quality accounting standards prevail. While attracting more capital to the U.S. is a valid business objective, its not clear we can do that by going to international financial reporting standards, says Ashwinpaul Sondhi, president of A.C. Sondhi Associates in Maplewood, N.J., who has served on CFA Institute committees. Paul Miller, a professor of accounting at the University of Colorado, would prefer to have competing standards, since the only standards all countries would be able to agree on would be very anaemic ones. He also believes a unified set of standards, rather than being helpful, would stifle much-needed innovation given that most of the existing accounting standards are more than 60 years old (Bogoslaw, 2008).Adam Pieniazek (2007) wrote in a research paper about the comparison and contrast of U.S. GA AP and International Accounting standards,Due to the uncertainty of what the future American accounting standard will be, individuals and organizations in the US, would rather have the FASB pick one of the options and concur that it will stick with it, rather than debate for eons over the positive and disallow aspects of the principles and rules based approach. As many prominent countries are already using the International Financial Reporting Standards, the representatives of American accounting must act now to align us with the IFRS otherwise we face potentially being shut out from the formation process of these standards which will affect all international companies. The FASBs cooperative work with the IASC will result in a true Global GAAP once the IFRS is aligned with the U.S. GAAP system, the American companies will issue statements according to the IFRS, as the SEC has declared that it will remove the reconciliation requirement once it is satisfied that IFRS are of a suffic ient standard. The completion of convergence will be a rise to the global economy, and inherently, all underlying economies, as it will standardize the practice of accounting, allowing more work to go into principles and theory research, and increase the pool of available and applicable accountants. No longer will investors have to reconcile financial statements to an accounting style they are familiar with and neither will accountants have to prepare statements differently in various countries (Pieniazek, 2007).ConclusionUnited States Accounting Standards and International Accounting Standards are two different practices in financial reporting, that come from different bases. These two practices are being worked on to converge and use a Global accounting standard. This convergence is creating much criticism. There are many countries that are currently using the International standards, and many more are starting to join. The FASB and IASC are working together to converge by 2010. This convergence will also make it easier for accounts to prepare financial statements reporting United States and International transactions.