Ifrs vs Gaap Essay

1360 Words Dec 9th, 2011 6 Pages
Craig Stroderd
9/27/11
Acct-461V
GAAP vs. IFRS

Over a decade ago, it was believed that the whole world would likely adopt the Generally Accepted Accounting Principles (GAAP). At the point in time, the International Financial reporting Standards (IFRS) was only about ten years old. In the last decade, the IFRS has been adopted in many growing countries. Currently, it is anticipated that the U.S. will converge its GAAP with the international IFRS, leaving behind only a modified IFRS. This may occur as early as 2014. The GAAP/IFRS convergence will require U.S. corporations to rework their financial statement presentation. If GAAP principles were to be listed in a book, it would be nine inches thick. IFRS fits into a book only
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Earnings per share could potentially be significantly different. Furthermore, GAAP calculates incremental shares using weighted average number of shares. IFRS considers the entire year the same period, forgoing the use of a weighted average. Students learn firsthand in advanced accounting the impact of using weighted average number of shares. The impact on earnings per share can be dramatic. Another major factor is the way dilution is managed. Under both GAAP and IFRS, the “if converted” method is used. The “if converted” method is applied under GAAP if one or more contingencies relate to the share price. Under IFRS, “if converted” is used only if contingencies are actually satisfied. The discrepancy created here can be very significant. Dilution can majorly affect earnings per share. If under GAAP dilution is listed as an actual occurrence, where under IFRS it is not, the earnings per share could look substantially different due to the difference in total issued shares. Intangible Assets were part of the 2006 “memorandum of understanding” between FASB and IASB. Eventually, intangibles assets were cut from the list of changes to be made. In future years the problems will have to be addressed. As far as research and development costs, IAS 38 will likely be fully adopted. One major problem still being faced is the revaluation of intangible assets. Under GAAP, revaluation is strictly prohibited. Under IFRs, revaluation

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