Connor and Martin have heard that IFRS is used internationally for financial statements but they know...

60.1K

Verified Solution

Question

Accounting

Connor and Martin have heard that IFRS is used internationallyfor financial statements but they know very little about it. Sincethey will most likely be going public and expanding internationallyin the near future, they are considering switching to IFRS fromGAAP and would like more information. They also realize if they gopublic and expand their business, they will have to deal with someissues they have not had to deal with previously, such as interimand segment reporting. For their first request, they would like youto research the following topics:
What are the similarities between GAAP and IFRS?
What are the major differences between GAAP and IFRS?
What are the requirements for interim reporting under both GAAPand IFRS?
Are there any problems or issues associated with interimreporting?
What are the advantages and disadvantages of providing segmentedreporting?
What are the requirements for segment reporting under both GAAPand IFRS? Include the definition of an operating segment.
Memorandum Mechanics should be as follows:
The body of the memorandum should be a professional presentationcentered on clear and concise writing. The responses to thequestions should be detailed, well researched, and specificallyrelated to CMC's industry.
The memorandum itself does not have to be in APA format.However, you should have in-text citations and a reference page.Both of these items should be in APA format.
Use the FASB Codification and IFRS to address all technicalaccounting issues presented in the questions, being certain toreference the applicable sections of the Codification and IFRS inyour report. You may quote directly from the Codification and IFRSas long as all direct quotes are included in quotation marks.

Answer & Explanation Solved by verified expert

4.4 Ratings (593 Votes)

1 Similarities between IFRS and US GAAP a Both are guiding principles that help in the preparation and presentation of a statement of accounts A professional accounting body issues them and that is why they are adopted in many countries of the world Both of the two provides relevance reliability transparency comparability understandability of the financial statement b GAAP and IFRS are alike in many ways thus making the convergence a realizable task The conceptual frameworks of both methods are very similar in structure referring to their accounting objectives elements and qualitative characteristics c Both standards use an income statement a balance sheet statement of cash flowsstatement of changes in equity and related notes d Both GAAP and IFRS prepare financial statements on an accrued basis meaning revenue is recognized when it is realized or realizable 2 Differences between US GAAP and IFRS While this is not a comprehensive list of differences that exist these examples provide a flavor of impacts on the financial statements and therefore on the conduct of businesses a Locally vs Globally As mentioned the IFRS is a globally accepted standard for accounting and is used in more than 110 countries On the other hand GAAP is exclusively used within the United States and has a different set of rules for accounting than most of the world This can make it more complicated when doing business internationally b Rules vs Principles A major difference between IFRS and GAAP accounting is the methodology used to assess the accounting process GAAP focuses on research and is rulebased whereas IFRS looks at the overall patterns and is based on principle With GAAP accounting theres little room for exceptions or interpretation as all transactions must abide by a specific set of rules With a principlebased accounting method such as the IFRS theres potential for different interpretations of the same taxrelated situations c Inventory Methods Under GAAP a company is allowed to use the Last In First Out LIFO method for inventory estimates However under IFRS the LIFO method for inventory is not allowed The Last In First Out valuation for inventory does not reflect an accurate flow of inventory in most cases and thus results in reports of unusually low income levels d Inventory Reversal In addition to having different methods for tracking inventory IFRS and GAAP accounting also differ when it comes to inventory writedown reversals GAAP specifies that if the market value of the asset increases the amount of the writedown cannot be reversed Under IFRS however in this same situation the amount of the writedown can be reversed In other words GAAP is overly cautious of inventory reversal and does not reflect any positive changes in the marketplace e Development Costs A companys development costs can be capitalized under IFRS as long as certain criteria are met This allows a business to leverage depreciation on fixed assets With GAAP development costs must be expensed the year they occur and are not allowed to be capitalized f Intangible Assets When it comes to intangible assets such as research and development or advertising costs IFRS accounting really shines as a principlebased method It takes into account whether an asset will have a future economic benefit as a way of assessing the value Intangible assets measured under GAAP are recognized at the fair market value and nothing more g Income Statements Under IFRS extraordinary or unusual items are included in the income statement and not segregated Meanwhile under GAAP they are separated and shown below the net income portion of the income statement h Classification of Liabilities The classification of debts under GAAP is split between current liabilities where a company expects to settle a debt within 12 months and noncurrent liabilities which are debts that will not be repaid within 12 months With IFRS there is no differentiation made between the classification of liabilities as all debts are considered noncurrent on the balance sheet i Fixed Assets When it comes to fixed assets such as property furniture and equipment companies using GAAP accounting must value these assets using the cost model The cost model takes into account the historical value of an asset minus any accumulated depreciation IFRS allows a different model for fixed assets called the revaluation model which is based on the fair value at the current date minus any accumulated depreciation and impairment losses j Quality Characteristics Finally one of the main differentiating factors between IFRS and GAAP is the qualitative characteristics to how the accounting methods function GAAP works within a hierarchy of characteristics such as relevance reliability comparability and understandability to make informed decisions based on userspecific circumstances IFRS also works with the same characteristics with the exception See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member