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Running Head: COMPARING IFRS TO GAAP 1

COMPARING IFRS TO GAAP 3

Comparing IFRS to GAAP

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Comparing IFRS to GAAP

QUESTION ONE

IFRS does not consent a particular arrangement or categorization of financial records on the statement of financial position. In the majority of cases, many businesses detail chattels in reverse order of liquidity. The following is an example of financial records on the statement of financial position for IFRS

• Long term resources

• Current assets

• Shareholder equity

• Long term liabilities

• Current liabilities

On the other hand, GAAP has specific requirements that all financial records be structured in an order that is based on the degree of liquidity. Cash is therefore usually recorded first while non-current chattels are recorded last. An example of GAAP classification on a balance sheet is seen below.

• Current assets

• Long-term assets

• Current liabilities

• Long term liabilities

• Shareholder equity.

QUESTION TWO

No, the conceptual frameworks of IFRS and GAAP do not differ in terms of the objective of financial reporting (Vander et al., 2007). They both hold very similar points of view on the objectivity of financial data. The two bodies agree that financial reporting data should be relevant and faithfully represented. Information that is considered as pertinent is anything that could be looked upon as essential by an investor, regulator or even creditor. In order or it to be regarded as authentically presented it should adhere to the principles of the industry and any approximates should be conventional in nature.

In IFRS, the term statement of ‘financial position’ is synonymous to the term balance sheet. On IFRS financial statements common stock is typically labeled as ‘Share Capital Ordinary’.

QUESTION THREE

There are several factors that the SEC has to consider in order to decide whether to adopt IFRS. The first factor should be the overall costs effects the adoption will have on businesses (Barth et al., 2012). The highest likelihood is that it would cost billions of money to implement IFRS. It would also necessitate accounting institutions to greatly change their teaching and learning requirements

The second factor to consider is the safeguarding of investors from scams on public connections. IFRS should only be put into practice if it can do greater work of defending investors from fraud.

QUESTION FOUR

Under GAAP, the of use cash-basis or accretion foundation accounting for revenue identification is possible. With cash basis, revenue is acknowledged when payment is received. Under accrual basis, revenue is documented when it becomes cost-effectively important. GAAP has precise requirements for diverse businesses on when an occurrence is eligible to be regarded as revenue (Kieso et al., 2010).

IFRS has fewer requirements on income identification but follows the same fundamental rule of economic implication. Revenue can be recorded when it is plausible that any upcoming economic profit linked with the article of income will flow to the body and it can be calculated dependably.

QUESTION FIVE

Under IFRS, revenue is used to explain the sum of economic profit resulting from the normal working activities of a company. Therefore, it is not inclusive of non-operating benefits. This principle relates similarly to operating costs, which are not inclusive of losses arising from non-operating activities.

QUESTION SIX

After being put into practice in 2002, SOX created a collection of fresh coverage rules for publically traded businesses. Although this costs American companies extra capital in conformity expenses, it also generates a more secure financial structure. The key scams of WorldCom and Enron were far more detrimental to the financial system. On the whole, it lessens the possibilities of risks for investors in public businesses and promotes overseas direct investment.

References

Barth, M. E., Landsman, W. R., Lang, M., & Williams, C. (2012). Are IFRS-based and US GAAP-based accounting amounts comparable? Journal of Accounting and Economics, 54(1), 68-93.

Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2010). Intermediate accounting: IFRS edition (Vol. 2). John Wiley & Sons.

Vander Meulen, S., Gaeremynck, A., & Willekens, M. (2007). Attribute differences between US GAAP and IFRS earnings: An exploratory study. The International Journal of Accounting, 42(2), 123-142.

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