Value Of Equity And Net Income Before And After Mandatory Transition From Gaap

The purpose of this report is to look at the advantages and disadvantages that would occur if the United States were to switch their financial reporting standards from U.S GAAP

Despite those enormous advantages, it has been argued that IFRSS adoption lead to significant costs. The main argument is that IFRSs do not consider local needs and priorities as every country has their own ‘business environment, legal systems, cultures, language and political environment’ (Henderson and Peirson, 2000 cited from Malthus, S., 2004). However, to overcome this problem, IASB can accommodate flexible reporting standards that enable companies to choose alternatives that are more suitable for their external condition. It is opinion of some opponents of IFRS adoption that IAS is ‘insufficiently detailed’ (Uddin,M.S., 2005, p.4) that require accountants’ and auditor’ professional judgment. However, overly detail might be contra productive and not flexible in anticipating every changes and differences.

As the responsibilities of the global harmonization of accounting standards IFRS and GAAP transfer to IASB, FASB’s influence is waning. Advantages of the convergence include high quality financial reporting, which lowers cost of capital for investors and the cost of borrowing for companies. However, there are disadvantages to be noted, such as the costs of introducing IFRS to current and potential accountants and the risk of reducing the uniformity of financial reports due to the lax rulings of IFRS, which promotes earnings management amongst companies. Although arguments regarding the convergence remain prevalent, the completion of IFRS and GAAP is inevitable. Come year 2015, accountants, investors, and companies alike will discover whether or not the pros outweighed the cons; or vice versa.

Access to capital markets in United Kingdom is easy after the adoption of IFRs. Public capital markets play an important role in financing the activities of non-financial companies in the United Kingdom, providing them with the main option to bank loans and private sources of finance. These set of international accounting standards helped reduce the information processing and auditing costs to the UK’s market participants. With the help of adoption of IFRS it is expected to lower information costs to capital markets, and the UK

The standard statements focus on accounting income for the entire corporation, not cash flows, and the two can be quite different during any given accounting period. However, for valuation purposes we need to discount cash flows, not accounting income. Moreover, since many firms have a number of separate divisions, and since division managers should be compensated on their divisions' performance, not that of the entire firm, information that focuses on the divisions is needed. These factors have led to the development of information that

With the growth of international business there is a need to standardize financial statements globally. Presently there are “approximately 120 foreign private issuers currently that report to the Commission using IFRS financial statements.” By standardizing accounting practices investors will be able to make informed decisions based on comparability and accuracy of financial statements. The SEC released this statement in 2008, “We believe that IFRS has the potential to best provide the common platform on which companies can report and investors can compare financial information.” The SEC has created a “Roadmap” or plan to convert US GAAP over to IFRS. According to The Committee of

The general accepted accounting principles (GAAP) numbers ensure a level of consistency but they do not take into consideration the particularities of each firm, or at least of each industry. Collins et al. (1997) observed a decline in the value relevance of GAAP earnings, since 1953, and even though research on non-GAAP numbers starts and focuses around the late 1990s, in 1973 the Securities and Exchange Commission (SEC) issued a warning for the non-GAAP measures (Accounting Series Release No 142, SEC 1973).

Firstly, it is crucial to acknowledge of the Positive Accounting Theory. According to Deegan & Samkin (n.d.), Positive Accounting Theory explains and predicts accounting practice and does not seek to determine particular actions. For instance, which accounting policies will be choosen by firms and how newly proposed accounting standard will be reacted to by firms (Deegan & Samkin n.d.). In the same report, the author claims the first aspect of Positive Accounting Theory, which is “Explanation” means providing reasons for observed practice. For example, positive accounting theory pursues to explain why historical cost accounting continues being used by firms and why convinced firms switch between a numbers of accounting techniques. The second factor, which is “Prediction” indicates that the theory predicts “unobserved phenomena” (Deegan & Samkin n.d.). The author clarifies that this phenomena is not necessarily a future phenomena, they

Non-GAAP metrics can provide investors with extra information about the company, and can help communicate what earnings would have been had certain infrequent expenses not occurred during the accounting period. Non-GAAP metrics also creates risks and challenges for investors due its inherent risk given its susceptibility to management bias. Some of the risks include reduced comparability of companies within the same industry and altered investor perception of earnings trends in the market as a whole and for individual companies. The motive behind the increase in non-GAAP earnings is questionable and could be attributed to at least two distinct factors. The first factor is management's desire to provide investors with additional insight into the company, and to help investors identify core profitability by excluding certain infrequent expenses in the calculation of adjusted earnings. The second factor is related to the Internal Revenue Service (IRS) regulations involving executive compensation. According to (Balsam,

Following Beaver & Ryan (2005), we refer to this as conditional conservatism, also referred to as income statement conservatism (Ball, Kothari, & Robin, 2000; Basu, 1997), ex post conservatism (Pope & Walker, 2003; Richardson & Tinaikar, 2004), and news-dependent conservatism (Chandra, 2011). Notable examples of such conservatism include the application of the lower of cost or market rule accounting for inventory, and the impairment accounting for long-lived tangible and intangible assets. This definition is in contrast to that of Unconditional conservatism, also often referred to as balance sheet conservatism (Beaver & Ryan, 2005), ex post conservatism (Pope & Walker, 2003; Richardson & Tinaikar, 2004), and news-independent conservatism (Chandra,

With complete notion and awareness of how each country has their set of rules, “the goal of IFRS is to provide a global framework for how public companies prepare and disclose their financial statements” (Rouse, 2011). This view is meant to provide general guidelines, as well as international comparisons through conventional and edifying means. To bring broader and vivid objectives, IFRS replaced IAS, the older standards, in order to bring a more comprehensive and simplified accounting procedures.

The impact on the performance of assessment of companies, for instants, stock price, and the result of the market value of firms will fluctuate. This is a great problem recently concerned by many investors. Generally speaking, the fluctuation result in from the change of accounting standards can be divided into two aspects. First aspect is the manipulation may be conducted by companies before the implementation of new standards. Most of them may use the new restrictions on accounting treatments, the aim is to make proper

The International Financial Reporting Standards, otherwise widely known as the IFRS, are a set of high quality financial reporting standards that are designed to be used globally by profit making enterprises. The continuous development of such international standards is an example of the international harmonization witnessed in the global financial sector over

Accounting forms the overall backbone of the financial world. Financial markets are predicated on consumer and user confidence. Without confidence, consumers attempting to make financial decisions will be doing so using inaccurate and incomplete information. The lack of transparency regarding the truthfulness of reported numbers creates uncertainty within the capital markets. This uncertainty regarding the accuracy of information ultimately undermines the overall financial system, causing harm to society in the process. Investors will require higher rates of return, individuals will become unlikely to invest, and innovation could become stifled, harming the quality of life for society overall. Accounting standards, particularly those from the IFRS, are required to help maintain confidence in the reliability of reported financial performance. These standards, such as IFRS 8, are often amended to reflect the economic realities of business transactions. These changes, although well intended, may often have unintended consequence. This is particularly true for IFRS 8 Operating Segments, which has been heavily criticized by pundits and practitioners alike (Ashish, 2010).

Tyrrall, Woodward, and Rakhimbekova (2007) emphasize several advantages with the IFRS adoption: 1) enlarge status and quality of financial reports, 2) setup costs related to development of local standards get eliminated or reduced, 3) increased efficiency in national and international markets due to more understandable,