GAAP vs. IFRS
As globalization begins to hit full stride, new rules and customs must be addressed with older and more established practices. The International Financial Reporting Standards (IFRS) represents a global perspective on the accounting rules for global organization. The United States has followed their Generally Accepted Accounting Principles (U.S. GAAP) to dictate the regulations dealing with domestic companies. The purpose of this essay is to examine both of these institutions to investigate the similarities and differences of these organizations. This essay will give background on both of these sets of rules before using two real-world companies' financial statements to analyze the practice of these rules.
US GAAP vs. IFRS
In order for fairness to prevail in the marketplace, standardized comparisons must be available for investigation for investors. Financial statements are the great equalizer in providing this data as important and pertinent information may be deduced by experienced and talented accountants. Currently, there are a number of similar methods of tabulating between U.S. GAAP and IFRS financial statement preparation, there are also a number of differences that make it difficult for preparers and investors to compare financial statements between organizations.
Riordan & Riordan expose the main difference between these two methodologies is in their basic structure. They claimed that the IFRS was developed in an environment in which the standards were not required by regulators. As a result the international system is more flexible and is considered principle-based. The authors claimed " evidence of this flexibility is provided in the various benchmark and alternative treatments that still remain within some of the standards. As the primary example, historical cost is the benchmark for the valuation of property, plant and equipment, whereas current valuation is an acceptable alternative for valuation under IFRS [IAS 16]" (p.4).
The...
The impact of these changes will be far-reaching. Those engaged in the financial sector will feel that greatest impact. However, the impact of these changes will be felt by everyone, including the American public. They will feel the changes by greater transparency and the ability to compare financial statements with greater equitability. It is expected that the IFRS will increase public trust in the financial statements of companies. Much of
S. GAAP," 2012). In other circumstances, IFRS requires the combination of two or more transactions when they are linked in a manner that the commercial impact can only be understood through referring to the transactions as a whole. Customer Loyalty Programs: Under IFRS accounting standards, loyalty or award programs in which a customer earns credit depending on their purchase of goods and/or services should be accounted for as multiple-element arrangements. Therefore, these
(2007) discover that foreign possession rises in corporations that willingly adopt International Accounting Values. Lastly, to support the article regarding Should U.S. Adopt IFRS? Khorana (2010) uses a study that involved utilizing 44 nations from the similar U.S. investment information that has been set as the one used in Khuran's study, Gordon and Shima (2010) display that U.S. stockholders deal more of their impartiality reserves in nations after adoption of
economic globalization over the past twenty years sparked demand for a single, worldwide set of high-quality accounting standards" (Benjamin 2012). The SEC's allowance for American companies with international holdings to use IFRS supports convergence to some extent by providing an incentive for filers to use IFRS. Companies that use IFRS can be compliant with both U.S. And international filing requirements, without having to keep 'double books.' All firms with
" (Camfferman & Zeff, 2) Indeed, the purpose which seems to stand above many others as specific Standards are examined is the improvement of financial reports as informative documents inbuilt with the capacity to educate users as to the financial disposition and outlook of reporting entities. The declared purpose of the IFRS is to improve the comparability, clarity, relevance and reliability of accounting processes and the resultant financial reporting across a
Southwest Airlines. What types of budgets would you recommend for the company? Why? Currently, the type of accounting standard that is being utilized by Southwest Airlines is Generally Accepted Accounting Principals (GAAP). This is the basic benchmark that has been implemented by many U.S. companies to more accurately account for: their budgets, expenses, assets and liabilities. Over the years, it has become common for most corporations to follow these different
Our semester plans gives you unlimited, unrestricted access to our entire library of resources —writing tools, guides, example essays, tutorials, class notes, and more.
Get Started Now