Compare IFRS And GAAP Essay

Submitted By mom2ca53
Words: 1158
Pages: 5

Compare IFRS and GAAP
Anne E Risley
ACC 290
Oct 27, 2014
Jammie Janis
Ifrs Versus Gaap
International Financial Reporting Standards vs. Generally Accepted Accounting Principals Over the last decade, the world has become increasingly connected. Businesses are embracing opportunities abroad and gathering investors from a progressively growing international market. Globalization has given rise to a number of questions regarding multicultural business practice. It has also created a need for universal financial reporting that is consistent and useful to all of its users, international and domestic alike. Due to this growing concern, the International Accounting Standards Board was established and has created a code of standards to facilitate such financial reporting. IFRS is an acronym for International Financial Reporting Standards. IFRS are a set of accounting standards that will establish a uniform financial statement accounting standard across the world (AICPA, “What is IFRS”). These standards will create a consistency among financial statements, and will allow external uses better comparability from one entity to another, regardless of the entity’s country of origin. IFRS was developed by the International Accounting Standards Board, IASB, a London based organization established in 2001. The AICPA was a founder member of this board, and, while not in direct affiliation thereof, has established a website to educate individuals and businesses on IFRS (AICPA, “What is the IASB”). The cost of the United States converting to IFRS is under scrutiny, many believe the benefits would be less than the actual costs. In the short-run, the initial costs may indeed outweigh the benefits; however, in the long-run the benefits will surpass the initial expenditure. Benefits of convergence include cost reduction, ease of access, increased consistency and comparability, as well as the creation of new business opportunities. Converging with IFRS may lead to a reduction of costs incurred by many multinational entities when preparing multiple sets of financial statements. Using one set of reporting standards will also free up employee’s time, allowing them to focus on internal controls and saving the entity money as a whole. Another benefit will be obtaining new systems; when converting to IFRS, entities must obtain new programs and system upgrades that will account under the new guidelines and GAAP. These programs will allow individuals to work with between GAAP and IFRS effortlessly. In addition, transitioning to IFRS will significantly increase the entity’s overall consistency and comparability. Increased consistency can be achieved when issuing and accounting for contacts in IFRS and not having to continually back-track to account for differences between the methods. Also, adopting IFRS will create consistency in the process of mergers and acquisitions. Increased comparability will be attained through a singular set of financial reports that do not vary from one country to another. This will help investors, creditors, and vendors feel confident in the information they are receiving. In this situation, the use of IFRS may be a deciding factor as to whether or not an investor will take securities in the entity (PwC 8-11). Together, these benefits are likely to outweigh the initial outflow of cash required to transition to the new financial reporting system. Reporting will change to a more principals based system from a seemingly rules based system, even though GAAP is a principals base- it is viewed more like rules. There will be many differences in reporting under IFRS, these areas include revenue recognition, inventory valuation, sales incentives, inventory valuation, and lease agreements (PwC 10). In order to prepare for the convergence, companies should remain abreast of new developments in the process- new standards are still being drafted and finalized in preparation for the convergence. Entities should also pay