Essay about Comparing IFRS to GAAP

The International Accounting Standards Board (IASB) was formed in an attempt to bring uniform accounting standards within international countries through its issuing of the International Financial Reporting Standards (IFRS). Today, over 100 countries including Canada, India, and Japan have adopted these standards for financial reporting. The growth of multinational companies such as Coca Cola and the increasing desire of cross-border investing have made it apparent that the U.S.accounting standards known as the Generally Accepted Accounting Principles (GAAP) issued by the Financial Accounting Standards Board (FASB) can no longer remain separate from IFRS. Under the request of the Securities and

6-8). For an asset to have alternative use, it must be reasonably expected (greater than a 50% chance) that an entity will achieve economic benefit from such alternative use and further development is not needed at the acquisition date to use the asset (E&Y, pg. 6-9).While under IFRS, acquired research and development assets are capitalized if it is probable that they will have future economic benefits. The price paid reflects expectations about the probability that the future economic benefits of the asset will flow to the entity. The probability recognition criterion is always assumed to be met for separately acquired intangible assets (E&Y, pg. 6-9). The starting point for companies applying IFRS is to differentiate between costs that are related to ‘research’ activities versus those related to ‘development’ activities. According to KPMG, while the definition of what constitutes ‘research’ versus ‘development’ is very similar between IFRS and US GAAP, neither provides a bright line on separating the two. Instead, a company needs to develop processes and controls that allow it to make that distinction based on the nature of different activities.

Kimmel,Paul D,Weygand, J, Donald E. Kieso (2008). Accounting. 3rd ed. New York : George Hoffman. Page 1010.

As stated earlier, the IASB arose from specific needs of the accounting industry and the public. As international trade has increased, the need for transnational accounting information has increased as well. This sparked the demand for development of international accounting standards to make financial data between countries more comparable. In 1973, the International Accounting Standards Committee (IASC) was formed to develop these international standards. The standards issued by the IASC, prior to 2001, were called International Accounting Standards (IASs). In 2001, the IASC made the International Accounting Standards Board (IASB) the official international standard-setting body. The standards issued by the IASB are called International Financial Reporting Standards (IFRSs) (Schroeder, Clark, & Cathey, 2011, p. 82-87).

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2012). Accounting Principles (10th ed.). Hoboken, NJ: John Wiley & sons.

Libby, R., Libby, P., & Short, D. (2009). Financial accounting; 6th Ed. New York, NY: McGraw Hill Retreived from: http://highered.mcgraw-hill.com/sites/0073324833/student_view0/chapter1/information.html.

Krishnan, S., & Lin, P., C.M.A. (2012). Inventory valuation under IFRS and GAAP. Strategic Finance, 93(9), 51-58. Retrieved from http://search.proquest.com/docview/1016754559?accountid=458

The reevaluation of plant assets can be defined as the process of change values from book value to fair value. This process is required in the event that there have been substantial economic changes in the market have occurred. For example, if a company purchased a building 10 years ago and it has appreciated due to a real estate boom, it can be reevaluated to fair value. If an asset is to be reevaluated under IFRS, it is required that all assets in its class must be treated with the same valuation method. This ensures that companies maintain consistency in valuations for the same types of assets.

Current U.S. GAAP comprises of broader revenue recognition concepts and numerous requirements for certain industries and transactions, which can result in different accounting for economically similar transactions. On the contrary, IFRS provides less guidance on revenue recognition such as for multiple-element arrangements. The lack of guidance is most noticeable among IFRS’s two main revenue recognition standards, IAS 18 Revenue and IAS 11 Construction Contracts. These

IFRS: Companies may use either historical cost or revalued amount. Revalued amount is fair value at date of revaluation less subsequent accumulated depreciation and impairment losses (Touche, 2009). Canadian and U.S. GAAP use historical cost as the basis of measurement for property, plant and equipment (Touche, 2009). Revaluations are prohibited in both Canadian and U.S. GAAP (Touche, 2009). So what does that mean for companies not sure of what to choose or needs guidance? Even when a particular IFRS lacks guidance, the application of the IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors is required to the company or auditors for fair value guidance in other standards (IFRS, Developing common fair value measurement

The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) are working together to eliminate a variety of difference between the United States generally accepted accounting procedures (U.S. GAAP or GAAP) and International Financial Reporting Standards (IFRS). This convergence project grew out of an agreement reached by the two boards in 2002 (Deloitte, 2004).

The country selected for this study is the United Kingdom (UK). UK Generally Accepted Accounting Practice (GAAP) has been in place for a long period of time and was harmonized in 2005 so as to comply with the international accounting standards. The UK embraced the principles of the International Financial Reporting Standards (IFRS) in 2005 after the European Union (EU) mandated that all members that were publicly listed companies be subject to reporting under the International Accounting Standards (IAS). This was to help facilitate that those listed companies could easily be compared to onr other on their performance and transparency was improved since they were now subject to the same principles of reporting. Companies in the United

Gilbertson, C. B., & Lehman, M. W. (2011). Century 21 accounting: General journal, 2012 copyright update. Mason, Ohio: South-Western.

The companies that use the GAAP standards have to expense all their research and development dues by reporting them on the income statement. So when the technological viability has been there, it is optional for the firm to start reporting costs as capital expenditures. This will allow the costs to be depreciated over the useful life that the tech provides.

1. Harrison Jr., Walter T.; Horngren, Charles T., Financial Accounting, sixth edition, New Jersey, USA, 2006.