Essay about Gaap and Ifrs Convergence

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GAAP and IFRS Convergence
Kenneth DeWitte
Strayer University

1. Describe IFRS and GAAP and what convergence means.
The International Financial Reporting Standards (IFRS) is the accounting framework used by the European Union, Japan, Canada, and other world economic leaders. The IFRS is based on the tenets of understandability, reliability, and comparability. It is based off the International Accounting Standards (IAS) and had the opportunity to be built from accounting ideas and principles used across the world. In recent years it also has had the chance to look at the United States Generally Accepted Accounting Principles (GAAP) and modify the rules to enhance clarity and consistency, intentionally setting itself apart from U.S.
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2. Analyze how convergence will affect public companies, accounting firms, and small and medium companies.
I can see the convergence making life much simpler for public companies. There will now be no need to have two sets of financial data when doing business overseas. This means less accounting staff and saved revenue. Also there will be a level of comparability between domestic and foreign companies that will allow for sound analysis and investing. This will lead to better decisions being made and hopefully some growth. For smaller businesses there will not be much change other than the change in presentation form. As for accounting firms though, there will be a need for training as each new rule is implemented by FASB. This means a rise in the demand for accountants versed in both GAAP and IFRS. 3. Evaluate at least three significant differences and similarities between IFRS and GAAP and the impact these similarities and differences can have on financial statements.
Three very significant differences between the IFRS and GAAP are revenue recognition, expense recognition, and inventory costing methods. The revenue recognition for GAAP is a broad system having many categories, but for IFRS revenue can fall into four distinct categories. The GAAP presentation is much clearer as to where the money is coming from. This leads to a much easier to read format. Expense recognition for GAAP is that you would record the
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