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IFRS 8-1: What are some steps taken by both the FASB and IASB to move to fair value measurement for financial instruments? In what ways have some of the approaches differed? Basic accounting and reporting issues related to recognition and measurement of receivables, allowance accounts, recording discounts, the allowance method to account for bad debt and factoring are pretty much all the same between GAAP and IFRS. However, IASB (International Accounting Standards Board) and FASB (Financial Accounting Standards Board) are taking steps by working to implement fair value measurement, the amount they currently could be sold for, for financial instruments. The FASB and IASB are facing opposition from various factors thus have adopted a piecemeal approach. Step one is to disclose the fair value information in the notes, and second step is the fair market option which permits companies to record some type of financial instrument at fair value in financial statements. (Kimmel, P. D. 2013). While both the FASB and IASB believe that financial statements would be more transparent and understandable if companies recorded and reported all financial instruments at fair value. Critics say that this FASB and IASB split model, some financial instruments are reported at fair value, and some reported assets (loans and receivables) can be amortized cost, can result in making a
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Many publicly traded companies in the European Union were required to adopt International Financial Reporting Standards ("IFRS") by 2005. The International Financial Reporting Standards (IFRS) is the accounting standard employed in more than 110 states and has a number of major distinctions from the U.S. Generally Accepted Accounting Principles (GAAP). At the theoretical stage, IFRS is said to be more of a "principles based" bookkeeping standard in comparison to the U.S. GAAP which is said to be more "rules based."ÿ By being more "principles based", IFRS, debatably, characterizes and confines the financial sides of a business deal better than the U.S. GAAP.
International Financial Reporting Standards (IFRSs) are generated by International Accounting Standards Board (IASB), an international body whose headquarters are in London. The IFRSs are anticipated to reinstate nationalized standards of individual states, similar to, the USGAAP (US Generally Accepted Accounting Principles) in the USA. IFRSs are homogeneous international bookkeeping principles presenting advanced intelligibility and discovery requirements. The prevalent financial system US, nevertheless, is reluctant to move from its USGAAP to IFRS. Still, there are considerable differences and inconsistencies involving USGAAP and IFRS in these areas: Upward revaluation of permanent assets, LIFO/FIFO record assessment, management of unusual items, cash flow statements and others.
Compare and Contrast USA GAAP to IFRS
1. Overview financial statements presentation
In IFRS relevant standards: Form and content is specified by IFRS, including IAS still extant and SIC/IFRIC Interpretations. Additional requirements may be specified by local statute, regulators or stock exchanges. While in the U.S GAAP, relevant standards: Form and content is specified by GAAP as set forth in GAAP hierarchy (AU Section 411) and SEC Regulation S-X.
In IFRS, Financial statements comprise: balance sheet, a statement showing either: the entire changes in equity, income statement; or adjustments in equity excluding those arising from investment or rather capital dealings with proprietors and distributions to these proprietors known as a Statement of Recognized Income and Expense (SORIE). There are no exemptions to cash flow statement, accounting guidelines and illustrative notes (IAS 1.8).
Conversely in the U.S GAAP, Financial statements comprise: income statement, statement of widespread income and balance sheet. This statement might be pooled with the income statement or the statement of changes in stockholders' equity (SFAS 130.22) statement of modifications in stockholders' equity. Alternatively, revelation of amendments in the detached accounts containing stockholders' equity other than retained earnings could be prepared in the notes to monetary statements (APB 12.10). Statements of cash flows have limited exemptions and notes to financial statements. Generally, in the IFRS comparative financial information is required "except where a Standard or interpretation requires otherwise" (IAS 1.36) while in the U.S GAAP, No specific requirement to provide comparative statements but desirable to do so (ARB 43, Ch2A, par. 2). SEC rules require balance sheets for the two most recent fiscal years and three year statements of income and cash flows (SEC Regulation S-X; Rules 3-01a and 3-02a). (Thornton, 2001, pp.3)
In the IFRS Relevant standard: IAS 1 while in the U.S GAAP, Relevant standards: ARB 43; SFAS 6 and 109; SEC Regulation S-X (Rule 5-02). The IAS 1 specifies items that must be presented on the face of the balance sheet, and lists additional information that must be either on the face or in the notes (IAS 1.68-.77). U.S. GAAP does not prescribe a standard format. SEC Regulation S-X (Rule 5-02) does require specific line items to appear on the face of the balance sheet, where applicable. IAS 1 requires current and non-current items to be presented as separate classifications on the face of the balance sheet (except where a presentation based on liquidity is reliable and more relevant) (IAS 1.51) while in the U.S GAAP, The balance sheets of most enterprises show separate classifications of current assets and liabilities.(pp.4-5)
However, an unclassified balance sheet is commonplace for enterprises in specialized industries for which the distinction is deemed to have little or no relevance (SFAS 6.7). Moreover, In the IFRS Deferred and current tax liabilities and assets must be shown as separate line items on the face of the balance sheet. Deferred tax assets (liabilities) may not be classified as current assets (liabilities) (IAS 1.70) while in the U.S. GAAP, Deferred tax assets and liabilities are separated into current and non-current amounts and the net current deferred tax asset or liability and the net non-current deferred tax asset or liability, if any, is shown on the face of the balance sheet (SFAS 109.41-.42).
3. Profit and loss account/income statement
In the IFRS Relevant standards: IAS 1, IFRS 5 while in the U.S. GAAP, Relevant standards: SEC Regulation S-X (Rule 5-03); APB 30; and SFAS 144. In the IFRS, Two main expense categorizations are nature of expenses and function of expenses. IAS 1 does not specify exact formats but does specify items that must be on the appearance of the returns statement and additional information that must be either on the appearance of the revenue statement or else in the annotations (IAS 1.78-.95). U.S. GAAP does not prescribe a standard format; single-step format or multiple steps formats acceptable. SEC Regulation S-X (Rule 5-03) does require specific line items to appear on the face of the income statement, where applicable. (Thornton, 2007, pp.8-10)
In the IFRS, where items of income and expense are material, disclose the amount and nature of those items either on the appearance of the revenue statement or in the annotations (IAS 1.86). Additional line items, headings and subtotals are presented where relevant to an understanding of performance (IAS 1.69). In the U.S. GAAP, a material occurrence or operation that is bizarre in character or transpires infrequently but not mutually must be accounted for as a detached constituent of revenue from ongoing procedures (APB 30.26).
4 .Statement of changes in equity/SORIE/Reporting Comprehensive Income
In the IFRS, Relevant standard: IAS 1.96-.101while in the U.S. GAAP, Relevant standards: ARB 43 Ch. 2A; SFAS 130; APB 12. In the IFRS, Present either: a statement of recognized income and expense (SORIE) as a primary statement, and present capital movements and distributions in the annotations, or a declaration of amendments in equity, which combines recognized income and expenses with capital movements and distributions in a statement of changes in equity. Certain items must be split between minority interest and parent. The effects on prior year adjustments must be expressed in respect of each component. The SORIE approach must be used if the IAS 19 approach of recognizing actuarial gains and losses outside of profit or loss is taken (IAS 19.93C) (see Section 6.2.).
On the other hand, in the U.S. GAAP, Comprehensive income and its components should be presented in a monetary statement that is demonstrated with equivalent importance as the other fiscal statements that comprise a complete pack of fiscal statements.
A specific format is not required but net income must be shown as a constituent of inclusive returns in the monetary statement that shows the comprehensive income information. Comprehensive income may be displayed 1) as part of the income statement, 2) on a stand-alone basis, or 3) as a component of the declaration of adjustments in the stockholders' equity (SFAS 130.22-.23). (pp.15-20)
Revelation of adjustments in the split accounts consisting of stockholders' equity besides to retained earnings is mandatory. These disclosures may be prepared in the annotations to the monetary statements or through a different financial statement (APB 12.10). Income attributable to minority interests is generally presented in consolidated profit and loss account as a deduction against after-tax profits.
5. Cash flow statement
In the IFRS, Relevant standard: IAS 7 while in the U.S. GAAP, Relevant standards: SFAS 95,102, and 104. In the IFRS, there are no exemptions while in the U.S. GAAP, there are exemption for: Defined benefit pension plans and certain other employee benefit plans and highly liquid investment companies that meet specified criteria (SFAS 102.10). In both the IFRS and the U.S. GAAP, Standard categories are: Operating, investing and financing whereby, Interest and dividends are classified consistently from year to year under the most appropriate heading. Interest and dividends paid may be shown as operating or financing cash flows. Interest and dividends received may be shown as operating or investing cash flows. However in IFRS, banks must show interest received and paid as operating cash flows(IAS 7.31-.34) and taxation cash flows are disclosed separately under 'operating' unless they can be identified specifically with investing or financing cash flows (IAS 7.14(f) and IAS 7.35-.36).Conversely, in the U.S. GAAP, taxation cash flows are classified as operating activities.
The attempt to synchronize and converge international bookkeeping principles has been around for more than 40 years. More essentially the IFRS is a regular support pack of principles, while the Korean GAAP is regulation based. This implies that better ruling will be needed when executive applies the IFRS than has been required in the past. This transformation in philosophy presents the maximum continuing challenges to the Korean accounting career. Some of the main regions of methodological bookkeeping disparity involving the IFRS and the GAAP comprise the consolidation and commerce amalgamation principles, monetary instruments, worker benefits and foreign legal tender bookkeeping.
According to Jha, the Financial Accounting Standards Board ("FASB") and the International Accounting Standards Board ("IASB") gave a memorandum of understanding, in September 2002, known as the "Norwalk Agreement" in which they "accredited their commitment to high-quality, compatible accounting standards that could be used for both domestic and cross-border financial reporting." The memo annotations that the Boards have "pledged to use their best efforts (a) to make their existing financial reporting standards fully compatible as soon as is practicable and (b) to coordinate their future work programs to ensure that once achieved, compatibility is maintained."Buy Compare and Contrast USA GAAP to IFRS essay paper online
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Comparing IFRS to GAAP
February 12, 2015
Comparing IFRS to GAAP
GAAP (Generally accepted accounting principles) are the rules, conventions and standards that set out accounting practices for companies established by the Financial Accounting Standard Board (FASB). IFRS (International Financial Reporting Standards is a set of principles and rules for reporting various transactions and items in the financial statements. Every country has its own version of GAAP as United States has US GAAP, Canada has Canadian GAAP and United Kingdom has UK GAAP, thus the world has its own GAAP, only it is called the IFRS.
Difference in the Balance Sheet Format
There are a few difference that can be noted in preparing a balance sheet between IFRS and GAAP. IFRS recommends but does not require the use of the title “statement of financial position” rather than the balance sheet. IFRS also uses the term “Share Capital Ordinary” rather than common stock. Although there is no particular format required under IFRS, most companies that follow IFRS present statement of financial position in reverse order of liquidity.
GAAP on the other hand requires that all accounts be ordered based on the degree of liquidity.
Conceptual Framework in terms of Objective Financial Reporting
The FASB and IASB (International Accounting Standards Board) developed a conceptual framework to serve as the basis for future accounting standards. The framework begins by stating that the primary objective of financial reporting is to provide financial information that is useful to investors and creditors for making decisions about providing capital. According to the FASB, useful information should possess two.
Comparing IFRS to GAAP
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Comparing IFRS to GAAP
In the financial industry there is a well-known difference between how the United States operates, and how the rest of the world conducts accounting practices. Generally Accepted Accounting Principles (GAAP) is the accounting standard practiced in the US. International Financial Reporting Standards (IFRS) is the accounting standard used around the world. GAAP is known to have more rules, while IFRS is based more on principle and general acceptance. In this paper GAAP and IFRS will be compared and contrasted in a brief overview.
The main difference between the formatting of IFRS and GAAP statement of financial of position and a GAAP balance sheet is the ordering of liquidity. IFRS does not require a particular order or any classification of accounts. It is common for companies to report assets in reverse liquidity under IFRS. An example of the order would be as follows: long term assets, current assets, shareholder equity, long term liabilities, and current liabilities. GAAP specifies and requires all a company’s account be classified and ordered based on liquidity. An example of the order would be as follows: current assets, long term assets, current liabilities, and shareholder equity.
IFRS and GAAP are very different, but the conceptual.
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Comparing IFRS to GAAP Essay
University of Phoenix- Week 4
IFRS8-1 What are some steps taken by both the FASB and IASB to move to fair value measurement for financial instruments? In what ways have some of the approaches differed?
Fair value measurements provide users of financial statements with an accurate picture of value of a company's assets. Both GAAP and IFRS require firms to include information regarding fair value measurement practices in the notes of financial statements. Under either system, companies will be required to report assets at either book value or fair value, depending on the situation. As a general rule of thumb, all assets in the same class must receive the same valuation treatment. In regards to the value of receivables, IRFS uses a two tiered method that first analyzes individual receivables, and then looks at receivables as a whole to determine if there is any impairment.
IFRS 9-1 What is component depreciation, and when must it be used?
Component depreciation happens when an asset has fundamentally different parts that should be depreciated with different treatment. Under IFRS, firms are required to use component depreciation if the parts of the asset offer varying patterns of benefit. The reasoning behind this is that it provides a clearer picture of the assets book value. This method is also permitted under GAAP, but U.S companies rarely use it in practice. (Ernst & Young 2012).
IFRS 9-2 What is revaluation of plant assets? When should revaluation be applied?
The revaluation 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 which have occurred. For example, if a company purchased a building 10 years ago and it is appreciated due to real estate boom, it can be reevaluated under IFRS, it is required that all.
Fair value measurements have remained a subject of conversation for IFRS and the FASB (Financial Accounting Standards Board). Whit all of the discussions they have decided upon two steps. The first one is to make note of the fair value information and secondly have the choice of reporting it in the financial statements. Component depreciation specifies that any significant parts of a depreciable asset that have different estimated useful lives should be separately depreciated. (Kimmel, Weygandt & Kieso,) This kind of depreciation is mandatory under IFRS when any part of the items being depreciated have different useful lives.
With IFRS, you have the ability to revaluate the plant assets to reveal its fair value. If an organization decides to use this method, it must use this for all of its assets that are in the same category. Relative to research and development, "development costs are expensed in the research phase. However, if using IFRS cost incurred during the development phase are capitalized once technology as development costs once product feasibility is achieved." (Kimmel, Weygandt & Kieso) An example of this could be that an organization sustains costs of $300,000 however $75,000 of that is used within the development phase it is removed from the development expenses and would be catalogued as development costs.
October 14, 2014
Both the International Financial Reporting Standards, also known as the IFRS and the Generally Accepted Accounting Principles, also known as GAAP are similar when it comes to the bottom line of what’s accepted in financial reporting/accounting for businesses but at the same time they have their differences. They differ in how they are presented to the way they recognize revenue. We will explore their differences and similarities in this paper by comparing IFRS to GAAP.
The IFRS and GAAP conceptual frameworks does not differ in terms of their objective as far as financial reporting. Both the IFRS and GAAP agree that the accounting financial reporting data for companies should be factual and honestly represented. All information should be relevant and deemed useful in order for investors, regulators and creditors to examine the financial data. All estimates and information should be verified by factual data which in turn should be relevant to the data that’s being presented. Furthermore, the information must be within regulated guidelines and standards in the industry. Overall both have the same financial reporting objective.
Some people insist that the internal control requirements of the Sarbanes-Oxley Act (SOX) put U.S. companies at a competitive disadvantage to companies outside the United States. There are pros and cons to the competitive implications of SOX. After SOX was implemented in 2002 American businesses had to spend money in order to recover the compliance expenses that was required to implement SOX. Many concur that it is a more reliable financial system, foreign investors are more comfortable with investing now that it’s in place while the risks are tremendously reduced now that SOX has been implemented.
Fair market measurements provide users of financial statements with an accurate picture of the value of a company’s assets. Both the IFRS and GAAP require firms to include information regarding fair value measurement practices in the notes of financial statements. Either of the systems companies will be required to report an asset at either book value or fair value, depending on the situation. As a generalized rule all assets in the same class must receive the same valuation treatment in regards to the value of receivables, IFRS uses a 2teired method that first analyzes individual receivables then looks at the receivables as a whole to determine if they are of any importance.
Components for depreciation happens when an asset has different parts that should be depreciated with different treatment. Under IFRS firms are required to use component depreciation if the parts of the assets offer varying patterns of benefits. The reasoning behind this is that it provides a clearer picture of the assets book value. This method is also permitted under GAAP but U.S companies rarely use this practice.
The reevaluation of plant assets can be defined as the process of change values from the book value to fair value. This process is required in the event that there have been substantial economic changes in the market. An example of this would be if a company bought a building 10 years ago and appreciated due to a real estate boom, it can be reevaluated at the fair value. If an asset is reevaluated under IFRS it is a requirement that all assets in its class must be treated with in the same valuation method. This is to make sure that companies maintains consistency in valuations for the same types of assets.
Companies that utilize GAAP standards are required to expense all research and development costs by reporting them on the income statements. IFRS only places this requirement on research costs. Once technological viability had been reached it is optional for a company to start reporting development costs as capital expenditures. This allows the costs to be depreciated over the useful life that the technology allows.
A contingent ability is an obligation that has the probability of re occurring in the future. This will not appear on any statements but will have notes made pertaining to it. An example of such would be an oil spill in the Mediterranean sea, that company would be held liable, that is considered contingent liability, they may be fines imposed and the responsibility of the clean-up would be upon that company. The fines would be administered by the foreign union of environmental violations. The basic liabilities between GAAP and IFRS are very similarly, almost the same. With only few minor differences. On the balance sheet GAAP requires that liabilities be reported in order of liquidity, while IFRS uses reverse order of liquidity. When it comes to reporting interest expense GAAP permits the use of effective interest rate methods and the straight line method where as IFRS only uses the interest rate method. IFRS also has special rules for contingent liabilities which is not required under GAAP
Comparing IFRS to GAAP Essay
8 July 2015
Comparing IFRS to GAAP Essay
Some steps which both the FASB and the IASB have taken in regards to moving the fair value measurement for the financial instruments have come a long way. FASB and ISAB are each individually, for the majority moving forward towards a fair value measurement for the financial instruments areas. Each believes in the fair value measurement rule to be a much more accurate description of how a company’s financial documents stack up. Of course, there is always going to be separate opinions and when it comes to the agreeing on every aspect within the financial world. However, in order to come to a conclusion between their difference, the decision was made to come together and disclose all of the fair value information off the financial statements, and on the notes as well. In addition, they both are willing to allow companies to record their financial estimates and values at a fair value within their financial statements, rather than require them to have this information. Even though utilizing the fair value is simply a substitution from the historical cost method.
Component depreciation is a particular area of a depreciable asset which may have a different estimated useful life. Component depreciation is general considered as a separate depreciated value, and is normally used by only the IFRS, however the GAAP does sometimes use this type of component depreciation. This type of depreciation would normally be used to view the depreciation as an authorization or allocation of cost over useful life of the assets. Each individual asset must be depreciated separately because of particular areas or groups involved, even though there is sometimes at least one asset which may equal the same number of another assets which makes the both a single unit.
IFRS does allow revaluation of plant assets for their fair value on the date of the reporting. A company which chooses to use the revaluation framework also has to follow the correct procedures of the revaluation. The revaluation is when an organization chooses to use their revaluation and apply it to every one of these assets within their same class. The assets which are having a fast change in pricing must be revalued annually. This revaluation of plant assets is not a requirement; however companies are essentially given a choice as to reappraise plant assets for any additional value.
Product development expenditures are normally processed or recorded as development expenses, and some others are known to call them development costs. Even though the differences are slight, these difference between developing costs and development expenses are when a cost is utilized when payment is issued for goods to develop assets and assets for goods, as in the case of purchasing land, it remains an asset for the company as long as it is owned by the company. An example of an expense might be when the company purchases items, and then that item will depreciate just as a car will, and for the company that will continue to depreciate with time. The land the company will keep on using, there will be basically no additional fees for the usage, and any vehicle needs maintenance, and loses value through the years.
The IFRS defines contingent liability as an obligation which is not recognized on the financial statements. An additional liability may be an issue from an organization’s distant past, such as a court case which depending on the outcome, could become a company’s liability. Now, when it comes to the IFRS, there are certain provisions which are clearly defined as a liability, which depending on the amount or timing, may affect items such as employee pay, vacation pay, ect.
There are differences between IFRS and GAAP, which may seem minimal with regards to accounting for the liabilities, but they are very different. Now, not every company will follow those.
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