GAAP Vs IFRS

By Richard Prince

The U.S. is considering changing their accounting regulations from the Generally Accepted Accounting Principals (GAAP) to the International Financial Reporting Standards (IFRS). An outline has been created by the SEC to convert the accounting system to a standardized international system. By doing so, many points of GAAP will be changed in order to make accounting across the world identical. The four points covered in this article are cash taxes, LIFO versus FIFO, fair value measurement, and uncertain tax positions. This article will explain the differences between the two accounting methods and how they will likely effect the existing accounting profession.

In November of 2008, the Securities Exchange Commission created and outlined a plan to convert the methods of accounting in the U.S. to the globally standard IFRS or International Financial Reporting standards. The United States will eventually do the same. This means that if a company has foreign operations, adapting IFRS would give them internal consistence over all. IFRS is already being used in over one hundred countries.

Four differences between GAAP and IFRS are covered in this article. The first being cash taxes. Changing over to IFRS might have a serious impact on the United States and foreign cash taxes of a business. In most cases, financial reporting is usually where a company begins to determine their taxable income for tax purposes. As these accounting policies change to IFRS from the existing GAAP method, changes will become a serious consideration for such companies.

LIFO users that use the last in first out method for valuing their inventory may find that the IFRS practice could cause a major tax issue. IFRS does not allow the last in first out method and the tax law only allows the use of LIFO if the method is used for financial reporting. Currently, the law to change from LIFO to FIFO will most likely be implemented over four years. Unless the law is changed in the U.S., the companies currently using LIFO will have a higher tax cost due to IFRS.

IFRS also differs from GAAP in the way they measure long term assets. Under IFRS, companies are allowed to measure property, plant, and equipment at fair value instead of book value. This is a very different procedure in comparison to GAAP. This different measurement requirement could have a significant effect on debt-to-equity and other balance sheet ratios.

According to the IFRS "a liability for tax uncertainties is based on the amount of taxes expected to be paid to the tax authorities," and the process for recognition in GAAP is not the same. IFRS currently has nothing like the GAAP requirements. The International Accounting Standards Board is working on revisions that would add a similar requirement, but it would probably require companies to account for these liabilities when only to the extent they become certain. This lowers the standard for tax uncertainties in comparison to GAAP.

This is only a portion of the differences between GAAP and IFRS. But what do these changes mean to current accountants. Currently the CPA exam has been created to test accounting graduates on the principles of GAAP. IFRS is not included in the curriculum. Until the SEC declares a set date by which American companies must begin to use IFRS, college accounting degree programs will most likely continue to teach future accountants methods of their profession that will almost positively be changed in the future. This could mean that after completing the CPA exam, changes to accounting practices could force certified public accountants to continue their education. Ones who do not would no longer be qualified as a CPA.

Richard Prince

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Indian and International Position in IFRS

By Ashlley Jarmari

International Financial Reporting Standards (IFRS) is a set of accounting standards, developed by the International Accounting Standards Board (IASB), which is becoming the global reporting standard for the preparation of public company financial statements.

The Indian Government has already started working on possible amendments in the Indian equivalent to IFRS, changes in SEBI and company laws for introducing IFRS in India. It may be noted that starting from April 1, 2011; India has made it mandatory for every listed company to adopt IFRS.

It is not just Indian accounting standards, which would converge fully with the IFRS by 2011, but Cost Accounting Standards (CAS) would also need to be in tune with the global model. The Institute of Cost and Works Accountants of India (ICWAI) is working out the impact of IFRS on costing principles. The Ministry of Corporate Affairs too has made its intention to converge to IFRS. A plan of proposed amendments to laws and regulations such as Companies Act, the Income-Tax Act, SEBI regulations, IRDA rule, Reserve Bank of India Act, etc. is made to adopt IFRS in India. Further, current accounting and presentation guidance that's not in line with the IFRS requirements would also be amended.

More than 12,000 companies in almost 120 countries have adopted IFRS, including listed companies in the European Union, Australia and New Zealand, and Russia. China is adopting IFRS from 2010. Other countries, including Canada and India, are expected to transition to IFRS by 2011. Japan and Mexico have made plans to converge their national standards. By 2011, the number of countries permitting IFRS is expected to reach 150. Most of the world's developed and emerging economies - including nearly all of the G20 members - have made commitments to IFRS.

Many online IFRS courses, training sessions, conferences, seminars, etc. are conducted worldwide for professionals and executives.

PIRON Education is a division of PIRON, a leading business group. PIRON Education is a leading provider of online professional educational and training services.We prepare students for professional accountancy and financial exams including the ACCA COURSE, IFRS COURSE.

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GAAP Against IFRS

By Kyle S Hartranft

Here in the United States of America accountants follow GAAP, or Generally Accepted Accounting Principles when they report, prepare, and present any financial statements. Although GAAP is not regulated or written law by the US government the SEC, or Securities Exchange Commission has deemed it necessary that all financial reporting follow these guidelines. Outside of the United States the guidelines followed by accountants is what is known as IFRS, or International Financial Reporting Standards. IFRS is the basic set of rules and standards that must be followed when reporting financial statements and like GAAP, is not written law but also deemed necessary by IASB, or the International Accounting Standards Board. These two sets of standards contain many similarities and many differences that will be looked at throughout this paper.

One of the many differences we see between GAAP and IFRS deals with revenue recognition and exactly when it is okay to do so under each set of standards. According to PWC, and their analysis of IFRS and US GAAP, "Under GAAP revenue recognition is based on fixed or determinable pricing criterion, which results in contingent amounts generally not being recorded until the contingency is resolved." The difference between what is seen with GAAP and IFRS when it comes to revenue recognition is compared to recognizing revenue when the contingency is resolved, IFRS uses the reliability of revenue in question along with the possible positive benefits that come along with the transaction to recognize revenue. Due to IFRS way of recognizing revenue, it is usually recognized earlier under these set of standards than it would be under GAAP.

After looking at how revenue is recognized it is now time so shift to the other side of the spectrum and see just what differences there are between IFRS and GAAP when it comes to expense recognition. In general there is one major difference when it comes to the reporting of expenses and when they may be allocated. According to the SEC, the major difference is that if costs are used for the benefit of something over multiple periods they may be allocated in each individual period under GAAP. Under IFRS however, those costs must be recognized in the period that they were incurred.

Another difference that is seen between IFRS and GAAP commonly used in businesses around the world is how each requires the reporting of a change in residual value of a property, plant, and equipment asset. Under IFRS if the residual value of a PP&E asset changes, whether it is an increase, or decrease it must be recorded as a change in estimate. The difference between IFRS and GAAP here is that under GAAP there is no standard when dealing with this issue and business may deal with it as they please. Research by the SEC has shown however though that, "A change in residual value generally is recorded only if the residual value has decreased." (SEC Staff) when in reference to accounting under GAAP.

The argument has also existed since both set of standards were created as to which system is better. Just like any argument each side raises good positive aspects about itself as well as valid negative aspects about the other. According to Stephen G. Austin and Norbert Tschakert, both CPA, MBA at Swenson Advisors and San Diego State University respectively, under both systems we have seen epic scandals with GAAP being headlined by AIG and IFRS being headlined by a scandal in Societe Cenerale. Even though the argument continues to go on to this day it has been seen that lately the SEC has been trying to incorporate IFRS into a new system that they hope the whole world can one day use. Due to international trading and the USA consistently doing business with international companies as well as setting up subsidiaries all over the world it has become evident that in the near future, a world-wide set of accounting standards is necessary in order to keep everyone on the same page. Not only will these new standards keep everyone on the same page but simplify accounting throughout the world and avoid confusion as much as possible when dealing with international financial reporting.

Bibliography
Austin, Stephen G., and Norbert Tschakert. Major Differences in US GAAP and IFRS and Latest Developments. Publication. San Diego, 2009. Web. http://www.swensonadvisors.com/.

IFRS and US GAAP; Similarities and Differences. Oct. 2011. PWC Staff Letter.

United States of America. Securities and Exchange Comission. Chief Accountant. A Comparison of US GAAP and IFRS. November 16, 2011. Print. http://www.sec.gov/

Kyle Hartranft
April 8, 2012

Kyle Hartranft

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IFRS and US GAAP Convergence

By Alicia C Kelly

Over the years, countries all over the world have been developing their own accounting standards, each being different in their own way. Due to globalization, it has become critical for countries to take into consideration the restrictions surrounding accounting practices. The main practices today are U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards). The FASB (Financial Accounting Standards Board) and the IASB (International Accounting Standards Board), started a convergence project to combine both sets of principles to alleviate business transactions globally. This article will discuss exactly what IFRS aims to solve, the key differences it has compared to U.S. GAAP, and the impact it will have on organizations in the United States.

The International Financial Reporting Standards were designed to make global financial business as easy as possible. Most people view this as a major importance because global markets will best be served if using the same set of accounting principles. Already over 115 countries use IFRS and the goal now is too merge these particular standards with U.S. principles. One set of standards will significantly improve financial information reported to investors because there are so many multinational corporations that exist today and view the market on a global scale. Also, mergers and acquisitions among U.S. and foreign companies, indicate the strong possibility for the same tendencies to occur in the future. The international significance of financial markets as well as information technology, are just a few of the other reasons why it is becoming so important to be able to communicate on a more comprehensive level worldwide.

There are certain key differences between among the standards related to GAAP and IFRS. One major difference relates to their conceptual approach. U.S. GAAP tends to be more detailed and is considered "principle-based". It uses research that is focused more on the literature in accounting treatment. IFRS is simpler in its accounting and disclosure requirements and is referred to as "rule-based". This methodology reviews facts and patterns more in depth.

Another distinguishing difference between IFRS and GAAP is accounting for inventories. Under U.S. GAAP, LIFO is a very common method for recording the value of inventory, where a firm records the last units purchased as the first ones that are used or sold. IFRS does not permit the use of LIFO. If GAAP were to fully change to the principles under IFRS, LIFO would completely be eliminated. This could cause issues to many U.S. firms, such as large income tax liabilities because firms will have to revalue their inventory.

IFRS and GAAP also differ in the way that they recognize revenue. GAAP is significantly more detailed when it comes to the guidance of specific types of transactions. IFRS only uses two specific standards: IAS 18 Revenue and IAS 11 Construction Contracts. GAAP outlines concepts and then provides detailed rules. One major difference is that IFRS allows revenue with contingent and questionable amounts to be recognized earlier, while GAAP requires a specific amount to be set in order to recognize revenue.

While these differences are just a select few of those that exist, they still give a flavor for the impact this convergence could have on a business. In recent years, there has been a push for U.S. companies to adopt IFRS and present their financial statements in a way that would make them easier for comparison around the world. Companies will have to have a change in management reporting and may have to upgrade systems to be in accordance to IFRS. The SEC (Securities Exchange Committee) hasn't yet required U.S. companies to adopt IFRS, so they still prepare financial statements under GAAP. However, some multinational corporations have started using IFRS for their foreign subsidiaries. Converting to IRFS will have major effects on U.S. companies and not just in financial reporting. It will affect a company's operations, information technology systems and tax reporting requirements, as well as internal reporting and measurements in performance.

Convergence projects are still in effect to develop compatible accounting standards over time. The FASB and IASB are working to try and ease the transition for when the use of IFRS becomes necessary. They are addressing issues related to leases, revenue recognition, financial statement recognition, fair value measurements, liabilities and equity, the statement of comprehensive income and financial instruments. Although there are certain differences between the two sets of standards, having a universal accounting language makes comparisons between businesses and foreign competitors a lot simpler. Companies will have to adjust for changes and prepare for IFRS, but in the long run, this conversion can provide cost savings, especially for multinational corporations. There still is a long way to go, but the SEC firmly believes that combining the two standards will benefit U.S. investors.

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International Financial Reporting Standards - IFRS - By US Companies

By Neetika Maheshwari

Adoption of International Financial Reporting Standards(IFRS) by US Companies will change the role of finance professionals. On November 14, 2008, the SEC released its proposed roadmap for the adoption of IFRS in the US thus affirming SEC focus on moving towards global accounting standards. In the Roadmap, the SEC did not set a definitive adoption date, but rather set forth several milestones that, if achieved, could lead to the required use of IFRS by US issuers beginning in 2014. Early adoption is permitted for the qualified companies for the period ending as early as December 15, 2009.

Following are the major highlights of the roadmap-
SEC Roadmap

* 2009- Early adoption permitted for qualified companies for periods ending December 15, 2009
* 2011-SEC will evaluate the success of early adopters and progress against the pre-defined mile stones.
* 2014- IFRS filing for large accelerated filers for Fiscal years ending on or after December 15, 2014.
* 2015- IFRS filing for accelerated filers for Fiscal years ending on or after December 15, 2015
* 2016- IFRS filing for non- accelerated filers for Fiscal years ending on or after December 15, 2016.

Regardless of the date US companies are required to adopt IFRS, in the near-term one can see continued convergence between US GAAP and IFRS accounting standards, followed by ultimate conversion to IFRS.

An agreement between the Financial Accounting Standards Board ("FASB") and the International Accounting Standards Board ("IASB"), called the Memorandum of Understanding ("MoU") pledges to improve both US GAAP and IFRSin 11 major topical areas such as revenue recognition, leasing, consolidation, financial instruments, debt and equity. The effects of these accounting changes reach far beyond just financial reporting.

We believe that the adoption is inevitable and would also be in the best interest of investors and companies as they move towards a single set of robust global accounting standards ensuring better transparency across nations.

Steps to be taken by US Companies to get IFRS Ready

-Understand the change - CEOs and CFOs of companies should know about the impact of IFRS on the entity as the change affects not just financial statements but also other regulatory, legal or operational obligations that rely on financial reporting.

-Perform an Initial assessment - Hire IFRS advisors to do a detailed and in depth assessment on the current process and practices.

-Impact on foreign subsidiaries - Consider how new adoption of standards will influence business across international boundaries. There might be a need to re-visit long term strategies, international taxation, financing and other processes.

-Corporate GRC (Governance, Reporting and Compliances- Starting early is the key to avoid huge costs later.

-Solid planning - Companies need to consider the short term and long term effect of conversion and prepare a timeline to effectively integrate them into existing processes.

-Impact of IFRS on US Companies Better transparency.

-Initial assessment of the differences in GAAP and IFRS accounting is necessary within a company

-Advanced accounting and financial systems needed for IFRS accounting

-Transitioning will require lot of work such as maintenance of dual ledgers, better information and reporting systems and increased costs

While IFRS implementation is focused on public companies, soon private companies will adopt too if they have overseas subsidiaries, foreign based operations or foreign based investors etc.

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The Globalization of Accounting: GAAP and IFRS

By Michael Jamgochian

Will the United States ever switch to the Metric System? Will there ever be a global currency? Will GAAP ever be trumped by IFRS? These are all valid questions when speaking about the globalization of the United States at large. It seems as though the United States holds dear its standard methods of measurement. When making a calculation, whether it is units of measurement or financial reporting, one must often convert a measurement or consider an international adaptation of given data to arrive at the respective equivalent. When discussing the financial aspect of globalization, it is hard to avoid the two major methods of financial reporting. GAAP (Generally Accepted Accounting Principles) are the guidelines for financial reporting in the United States. On the other hand, IFRS (International Financial Reporting Standards) are a set of guidelines that regulate how transactions and other events are reported in international financial statements. Despite a lot of aspects that make the two similar, there are subtle differences that virtually set them a world apart.

One of the main differences between GAAP and IFRS is how each one recognizes intangible assets. Intangible assets include advertising costs, research and development costs, copyrights, etc. GAAP takes a very simplistic approach and values these assets at fair market value. IFRS takes a more descriptive approach and only recognizes such an asset if it has a dependable and future benefit to the firm.

Another difference between GAAP and IFRS is how handles inventory. Under GAAP either LIFO (Last-In-First-Out) or FIFO (First-In-Last-Out) can be used to measure inventory costs. Under IFRS, the LIFO method does not exist and cannot be used. As a result of GAAP's use of LIFO, accountants and analysts have to take different approaches when comparing inventory data. An example of this is if a company uses LIFO to measure inventory and an analyst needs to convert the calculation to FIFO for accurate comparison analysis. This is an extra step that would be eliminated if there was a standard for measuring inventory.

Some similarities exist between GAAP and IFRS as well. Each set of standards requires a full report including a balance sheet, income statement, etc. Just as in GAAP, IFRS requires these statements to be prepared on an accrual basis. This means that the statements must reflect revenues and expenses of the same period in which they were incurred by the firm. Neither set of standards require these statements to be prepared for external use in the interim.

There are definitely some pros and cons to both GAAP and IFRS that bring question to which set of standards would be beneficial. One of the good things about the continuation of GAAP is that accountants and analysts are used to it. This makes it easy to work with the reports because it is what everyone is used to. Unfortunately, one of the bad things about GAAP is that it is rule-based. This allows an accountant to open the rules for interpretation and use them to provide misleading data. Many firms have illegally manipulated the rules of GAAP to establish rapport with new clients rather than to benefit investors. Needless to say, GAAP does not exactly paint the most accurate picture of a company's performance when compared to IFRS.

The good thing about IFRS is that it is more principal-based. This means that it is more concerned with painting a clear picture of company performance, sustainability, and stability especially when being directly compared to another company. This is better for investors, employees, clients, and anyone else with a vested interest in the firm. It also helps to keep the firm honest and transparent so that they are less tempted to use illegal methods of accountancy.

One of the few down sides to IFRS is that it is not what the US is used to using. The changes, although most are subtle, would create an impact on the way companies are taxed and retain revenues. The scale of impact on the economy is one that is open for interpretation.

Although FASB (Financial Accounting Standards Board) has not set goals to make the major switch to IFRS yet, there are signs of GAAP coming closer to a convergence. With well over 100 countries adopting the alternate set of standards, it may not be long before the US does the same. Dates have been set to address a possible change with regards to how FASB could change GAAP. With a large percentage of US companies having operations in other countries around the world, many have used IFRS along with GAAP for internal use. It is only a matter of time before firms will be required to adapt methods of the IFRS for external use.

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Transitioning to IFRS: Can It Be Done?

By Raymonda Mouchaham

As a global economy becomes reality, implementing International Financial Reporting Standards (IFRS) seems more than a logical move. How could a one-world system be anything but beneficial? On the other hand, is it even a viable option for those countries that lag behind the rest of the world? What are the challenges of transitioning current market accountability to the IFRS? Although it has been a much discussed topic in recent years, uniformity in global markets is complex in nature, even though it may very well be a necessity. There are key components that need to be considered before the process is completed.

Cultural diversity in society is an attribute, but when it comes to assimilating accounting standards worldwide, it creates monumental challenges. The application of reporting transactions from one jurisdiction to another can breed inconsistency. For example, revenue recognition-a real estate property can reflect two very different results. In addition, institutional or legal obstacles can impact loan covenants-specifically, debt versus equity classifications. Other matters that complicate matters are disagreements on stock-option standards, and rules on derivatives and fair value.

Perhaps one of the most significant disadvantages of using the IFRS is the difficulty of implementing international standards in new emerging economies (Cambodia, The Philippines, Thailand and Vietnam). Unlike the G20 powerhouses (U.S., China, Malaysia, etc.), these less economically-sophisticated countries would have difficulty with the transition. Wayne Upton, Director of International Activities and Chairman of the IFRS Interpretation Committee at the IASB, says "that their regulatory infrastructure or standard-setting capabilities are not as well developed as other, larger emerging markets. They don't tend to have such well-developed accounting profession as, say, Indonesia."

In addition, there are concerns that the "IFRS provides fewer detailed rules and limited industry-specific guidance" than U.S. GAAP, which has been the cornerstone of quality in the financial standards. The insurance and extractive industries are prime examples of where U.S. GAAP guidance exists and IFRS is deficient. Another concern is that U.S. companies with minimal international ties may not find it relevant to prepare IFRS financial statements. This could also lead to discrepancies in reporting. In a sense, the reporting of data may be compromised-contributing to the so-called "disconnect between the accounting outcome recognized in the financial statements, and the economic reality that underlies the transactions that are being accounted for," as reported by Accounting Today. Other key limitations of IFRS include the following:

1) It does not permit Last In, First Out (LIFO).

2) It uses a single-step method for impairment write-downs rather than the two-step method used in U.S. GAAP, making write-downs more likely.

3) It requires capitalization of development costs once certain qualifying criteria are met. U.S. GAAP generally requires development costs to be expensed as incurred, except for costs related to the development of computer software, for which capitalization is required once certain criteria are met.

Aside from straight financial reporting, IFRS can directly impact how a domestic company runs its information technology systems, tax reporting requirements, internal reporting, performance metrics, and tracking of stock-based compensation.

Another daunting task of transitioning to the IFRS is getting the FASB, IASB, and other national standard-setters to agree on terms. Australia, Canada, France, Germany, Japan (world's second-largest economy), and the United Kingdom have their own accounting standards. The Accountant, a financial publication, reported that most Japanese listed companies must use Japanese GAAP; Chinese listed companies are required to use Chinese GAAP; India has not transitioned listed companies from Indian GAAP to IFRS; private companies in Europe use national GAAP; and private companies in Canada use a specific version of Canadian GAAP and non-profits and government entities do not use IFRS. Establishing compatibility is essential for a one-world economy, but can it be done? Is it possible to agree on the same standards, interpretations, and language? If this does become a reality, who would be responsible for enforcing the standards?

For a complete overhaul to IFRS, those in the profession will need to learn the new system. CPA's, preparers, auditors, actuaries, and valuation experts will be affected by this change. Extensive training will be both time-consuming and costly. In addition, many financial resources (publications, software, etc.) will have to be revamped to include the new reporting standards.

As the global markets seek to become a one-world operation, the move to IFRS seems inevitable. It may seem like a logical move, but is it really a viable option? With the proposed changes come many challenges. Can it be done? It may very well be an uphill battle.

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International Convergence of Accounting Standards: IFRS Vs GAAP

By Shannon E McGinty

For a decade, the United States has been grappling with the decision to convert from the domestic Generally Accepted Accounting Principles (GAAP) to the worldwide adapted International Financial Reporting Standards (IFRS). Both enforcement bodies, the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB), have been working together since 2002 to converge the two sets of accounting standards into one universal collection of regulations. The convergence of these two standards would give an internationally comparable compilation of financial information of companies all over the globe. This article discusses some of the major differences between GAAP and IFRS, the importance of combining the two and the likelihood that the U.S. will abandon their native accounting standards.

While there are many disparities with the IABS's and the FASB's standards, only a few will be brought to light in this piece. One difference seen between GAAP and IFRS is the classification of their deferred tax assets and liabilities. A deferred tax asset represents the increase in taxes refundable in future years as a result of deductible temporary differences, while a deferred tax liability represents the increase in taxes payable in future years. IFRS chooses to always classify these deferred tax consequences as non-current, no matter what the relating asset or liability may be classified as. GAAP on the other hand, takes the underlying asset or liability into consideration and classifies them as either current or non-current accordingly. This particular difference is being addressed by the IASB and FASB in their short-term convergence projects.

When it comes to revenue recognition, GAAP definitely has more specific regulations especially for particular industries. Also, GAAP requires that public companies follow even more detailed guidelines set by the Securities and Exchange Commission, also known as the SEC. While there are some consistencies with GAAP standards, IFRS is comprised of more general principles, rather than industry-specific. When recognizing revenue for construction contracts, both prefer the percentage-of-completion method first. Where they differ, however, is where they go once that method is not accessible, because the revenues and costs are too difficult to estimate. GAAP opts to utilize the completed contract method. As for IFRS, they prohibit the use of the completed contract method and, therefore, decide to employ the cost recovery method. While the construction contract methods are not currently being addressed specifically, there is a joint effort in progress for the recognition of revenue in many different areas.

The last difference to be discussed in this article is the way GAAP and IFRS recognize actuarial gains and losses in regard to pension plans. IFRS gives the option to classify them in Net Income or Other Comprehensive Income or to amortize them over the expected remaining working life of the employee. GAAP, on the other hand, does not permit choice. Actuarial gains and losses are reported in Accumulated Other Comprehensive Income and then amortized into income over remaining service lives. The IASB has proposed an exposure draft that states that these gains and losses will be recognized in the statement of equity.

The importance of switching from one accounting standard to another is also a key factor in the decision. There is debate, however, over whether the U.S. switching to IFRS from GAAP would be beneficial or not. The clear benefit would be the comparability of financial information from one set of accounting standards for companies and industries all over the world. The problem, though, lies with improvement of the quality of reporting with the adoption of the new standards. Just because a universal set of standards has been put into effect does not guarantee complete comparability. For the U.S. to move away from their already high-quality accounting standards to a new widespread, yet possibly ineffective set of standards, could be more detrimental than beneficial.

Another huge advantage would be the reduction of cost. U.S.-based multinational firms and their foreign subsidiaries would be able to benefit the most. It is very costly to translate reports from GAAP to IFRS and vice versa. It would be more beneficial for these companies to have one set of standards to operate with across seas. Companies that would not profit from the switch would be domestically oriented American companies. It would be way too expensive for these smaller companies to transition from one set of standards to another without seeing much, if any, benefits from the switch.

The underlying question to all of this is how likely is it that the United States is going to switch from their familiar GAAP to the foreign IFRS. While there are pros and cons to both sides of the argument, it seems more unlikely that the U.S. will fully adopt IFRS. A recent report released by the SEC commissioner stated that the SEC will again delay its decision on a timetable for when IFRS will begin to be fully implemented. Good ideas don't take long to catch on. The fact that people continually drag their feet on this decision says something about the likelihood of it actually going into effect.

This potential standards change has been shaking up the accounting profession ever since its proposal in 2002. Most companies around the world have already adopted the IFRS accounting standards, yet the U.S. is still exercising their own GAAP standards. The switch would cause many new changes, such as changes in the classification of deferred tax assets and liabilities, revenue recognition and recognition of actuarial gains and losses. While there have been arguments showing the importance of switching from GAAP to IFRS in the U.S., the likelihood of it actually happening is very slim. All we can do now is prepare for the change and sit back and wait.

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Should the United States Switch to IFRS?

By Jaclyn Muddiman

Accounting is said to be the language of business. In order to be successful in the business world, one must know this language. After the Great Depression, the Securities and Exchange Commission (SEC) was started in order to regulate the accounting world. They enforced the Generally Accepted Accounting Principles, also known as GAAP, to be used among the United States public companies. In 2001 the International Accounting Standards Board (IASB) was started to create accounting principles to be used internationally. Thus the International Financial Reporting Standards (IFRS) was created, which is used by over 100 countries today.

Since globalization began, countries have become more linked through businesses. Many companies, both American and foreign, are traveling overseas in order to open up new franchises in order to increase the expansion and survival of their business. However, a problem these companies have encountered is the difference in accounting principles. The United States has been debating whether to switch from GAAP to IFRS. Currently, the SEC is debating the pros and cons to this change.

A large company with many sectors in different parts of the world would find switching to IFRS very useful. They would be using the same accounting principles as the country they are doing business in which would simplify their accounting procedures. Also, this switch would allow better comparability of their financial statements. If it is easy to compare financial statements between competing companies, investors are able to decide where they should invest their money.

IFRS uses a principle-based approach while GAAP uses a rule-based approach. This can be seen as an advantage to companies if the United States were to switch to IFRS. Instead of following specific rules to reach a final valuation, a company has some leeway. Companies would be able to reach a final valuation in a few different ways instead of using a predetermined route. This would be able to set certain companies apart from one another and could potentially help them gain more money from investors.

However, there is a downside to this flexibility. Fraud has become more prominent in today's society. The SEC has had to enforce many regulations to help prevent fraud, but it is still occurring. If the United States switched to IFRS, companies would use the principle-based approach, which could allow more opportunities for the financial statements to be manipulated. Companies would be able to show investors what they want to see as opposed to what is actually true. If the United States were to switch to IFRS, they would have to consider such disadvantages.

Another disadvantage to consider is the cost of switching from GAAP to IFRS. Accountants have always been educated with GAAP and if the switch occurred, all accountants would have to be re-educated. This would raise debates on whether companies would have to pay for the re-education for their staff or if it would be up the individual to pay for this expense. Many companies and individuals cannot afford to fund new education since the cost of education is continuously rising. If IFRS was going to become used among companies in the United States, the SEC would have to consider this cost and find ways to make it more affordable.

While the SEC is currently debating the switch from GAAP to IFRS, the conversion will eventually be unavoidable. In order for companies to expand internationally and continue their success they will have to switch to IFRS to be more efficient. The United States can use this change to their advantage. Since the recent recession of the United States economy, companies have been expanding overseas in order to stay in business. If the SEC were to allow the use of IFRS, the United States government could benefit from the expansion of these companies.

While the debate to switch from GAAP to IFRS has been going on for many years, the SEC has still not reached a conclusion. There are a couple advantages to consider such as, better comparability of financial statements and flexibility. These advantages could benefit companies, since American investors and international investors would be able to decide where they wish to put their money. Some disadvantages to consider are more opportunities for the manipulation of financial statements to occur, which encourages fraud to be committed. Also, the cost of switching from GAAP to IFRS would be very high. Current accountants would need to be re-educated and all financial statements would need to be changed to match IFRS regulations. Once the SEC considers all of these factors, they will be able to decide when the best time to make the change will be, since it is unavoidable.

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US GAAP Vs IFRS

By Genna Francesca Squadroni

For those in the business world - particularly in the accounting field - a major issue has surfaced in recent years relating to the differences between Generally Accepted Accounting Principals (GAAP) and the International Financial Reporting Standards (IFRS). Currently, the majority of countries in the world follow International Financial Reporting Standards guidelines; however, the United States still uses Generally Accepted Accounting Principals. This topic has been a main focus because there is a plan for convergence between the two frameworks in the near future. The United States accounting system will undergo drastic changes when this occurs, but in the long-run the idea is to simplify the accounting procedures around the world. The main difference between GAAP and IFRS is that GAAP is considerably rule-based, whereas IFRS is more principal-based which means IFRS has room for interpretation. The specific differences are far too many to cover in a short presentation, however, an explanation of some major differences are mentioned below.

In certain instances, GAAP and IFRS follow different approaches for the determination of specific amounts as well as how these amounts are recognized in financial statements and within the notes. One of these instances occurs in the measurement of inventory. Unlike GAAP which accepts the FIFO, LIFO, and weighted-average methods, IFRS does not accept LIFO. Also, when inventory is recorded on the balance sheet, IFRS requires that it be reported at the lower of historical cost or Net Realizable Value. GAAP, on the other hand, requires inventory to be reported at the lower of historical cost or replacement value. Another difference occurs in the measurement of property, plant, and equipment. Property, plant, and equipment are originally measured at cost. After recognition, however, GAAP and IFRS have variations in how they treat these assets. Under IFRS, PPE can be revalued if there is a higher fair value; GAAP does not allow for any revaluation after recognition.

There are also differences for sales of services, particularly the means in which revenue is recognized. For US GAAP the cost-to-cost percentage of completion method is prohibited unless the contract specifically says otherwise. The completed-performance method is the generally accepted method under GAAP. When the outcome of a service cannot be reasonably estimated then the revenue must be temporarily deferred. For service sales under IFRS the percentage of completion method is followed. When the transaction cannot be reasonably estimated under this framework, the zero-profit model is used and the revenue is recognized to the degree of recoverable expenses taken on. In certain circumstances the outcome may be very uncertain: if this is the case then the revenue must be deferred until a better estimate of the transaction can be made.

Revenue is also recognized differently for warranties. Under Generally Accepted Accounting Principals, revenue for product maintenance is usually deferred and recognized as income on a straight-line basis over the contract life. When the warranty is bought separately or in addition to the original warranty, the revenue is determined through reference to the selling price for maintenance contracts. Under International Financial Reporting Standards, the revenue from the extended warranty will be deferred. The recognition of this revenue will occur over the period that is covered by the warranty.

Construction contracts are also an area in which the recognition of revenue differs between the two accounting frameworks. The preferred method that is most commonly used under US GAAP is the percentage of completion method. However, when a reasonable estimate cannot be made, the completed-contract method is required to be used. The percentage of completion method has two different approaches: the first is the revenue approach and the second is the gross-profit approach. IFRS generally uses the revenue approach under the percentage of completion method. When the construction project cannot be estimated reasonably, the zero-profit method is used because IFRS does not allow the gross-profit method to be used.

As stated above, the details of all the variations and changes that must occur are far too many to cover in a brief presentation. All the differences that were mentioned - although they were few of many - were important in the scope of things. Accounting standards are extremely specific and complicated to understand, hence the reason there is a planned convergence in for the future. There will be much less confusion in the accounting world if some kind of unity exists between most countries. US GAAP is easily the most in depth framework of all the currently existing frameworks. With IFRS having more room for interpretation, it takes away from the rule-based complications that exist within GAAP standards. Hopefully with the convergence there will be more unity and less confusion in terms of accounting all over the world.

Genna Francesca Squadroni

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IFRS Conversion: An Expensive Investment in Professional Training and Development, and Academia

By Raymonda Mouchaham

Transitioning to the global accounting system is a monumental challenge that will cost millions of dollars. As the global economy gains strength, there doesn't seem to be any other option than to prepare for the inevitable. It's a known fact that in order to remain competitive with other international markets, the United States must adapt to the changes of IFRS. These changes will generate significant expenses that go beyond the business of financial reporting. A good portion of expense will be incurred from professional training and development that will need to be implemented industry-wide. How about the cost of upgrades in financial software programs and other technologies? In addition, revisions will need to be made to accounting curriculum in colleges and universities across the nation to reflect IFRS. It's clear to see that the new reporting system will be a costly investment to the financial industry and beyond.

With over 120 nations already using IFRS, it's difficult to conduct business as usual with our international counterparts without converting to the new accounting system. According to D.J. Gannon, a Deloitte & Touche partner, "This is not just a technical accounting exercise... it encompasses a company's entire operations, including auditing and oversight, cash management, corporate taxes, technology and software." The preparations that are required to make the necessary upgrades in communication and software systems are daunting. Think of the vast amount of financial professionals, including regulators, CPAs, investors-to name a few- that will need training to stay current with the new global standards. Not only will the transition require CPAs, financial statement preparers, and auditors to learn the international standards, but actuaries and valuation experts will also need comprehensive training on measuring certain assets and liabilities. Time is money; therefore, the cost of training professionals at all levels in the industry will require a significant investment.

Unfortunately, the majority of CPAs have limited knowledge of IFRS, so this alone could drive the cost of professional training and development well beyond what companies can afford. In today's market, how will this affect cost-conscious CFOs? It doesn't stop there either. The magnitude of the conversion will demand on-going training and development needs throughout its implementation. With the projection of a total conversion estimated at two to three years, costs could be astronomical. This is the reason why professional organizations such as the American Accounting Association and industry groups (KPMG, Deloitte, PricewaterhouseCoopers) opted to introduce IFRS in their training materials, testing, and certification programs, as well as industry publications. With time being a critical factor in the transition, the sooner professionals become familiar with the new standards, the better off the nation is strategically.

Another expense of the IFRS transition centers on academia. The empirical study, "A Cost-Benefit Analysis of the Transition from GAAP to IFRS in the United States," reports that the costs of hiring extra professors are projected to be $100,000-$250,000 per institution. In addition, other costs will be incurred from the hiring of administrative staff that will be responsible for assisting professors with curriculum changes and related issues. With budget cuts in education, who will cover these expenses? Undoubtedly, this will most likely get passed along to the student in the form of a tuition increase. This doesn't include the cost of new textbooks that students will need to purchase. Textbooks are being revised to include material that covers IFRS. The majority of professors will require students to purchase newer editions- so much for purchasing used books at a discount!

Aside from the financial implications of the conversion on academia, there is also the burden of deciding what IFRS material should be covered in a given semester. With volumes of information, no set criteria, and instructors with little exposure to the new standards, how will all of this be set in motion? At this point, there seems to be more questions than answers. In having a true understanding of the overwhelming responsibility being placed upon educational institutions to upgrade their curricula and provide training for professors in IFRS, PricewaterhouseCoopers donation of $700,000 in grants will be put to good use. Other industry leaders must follow in their footsteps if we expect a seamless transition.

For a complete overhaul to IFRS, those in the profession will need to learn the new system. In addition to CPAs, preparers, auditors, actuaries, and valuation experts, educational institutions will also need to prepare for the transition. Many financial resources including publications, software, and other technologies will have to be upgraded to include the new reporting standards. The transition to IFRS will be a costly move that will impact the financial industry for years to come.

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A Uniform Code: GAAP Vs IFRS

By Jason T Showalter

For those who know anything about the accounting field know that when dealing with international business there is always one major problem. This problem is the discrepancies in dealing with Generally Accepted Accounting Principles in the United States and International Financial Reporting Standards in other countries. These two systems contain many differences that cause problems for accountants. Many professionals believe that United States GAAP is the better system of the two. Del Rush, a partner with Frost, PLLC, a group of certified public accountants, discussed the differences between GAAP and IFRS. He said, "Because GAAP is rules-based, what you'll find is that if you were to print all the U.S. rules, the standards would probably be four times as lengthy as the IFRS standards" (Barron). This shows that GAAP looks more thorough than IFRS which Rush claimed was more principles-based.With the lack of uniformity on a global basis, U.S. companies who wish to extend their business internationally will run into a variety of problems because of the varying standards. I will highlight a few of the major differences between the two systems and the problems that these differences cause.

One significant difference between these two systems is that GAAP uses the historical cost principle, whereas IFRS uses fair-value. Generally, it is easier to use historical cost for most reporting situations than it is to use fair-value. When using fair-value to evaluate what number to report, calculations must be made to figure out the market value of the object. In some situations it is difficult to judge what exactly that value should be which means some discretion exists. When discretion is used in accounting practices numbers can be manipulated more easily. Manipulated numbers cause problems because they are usually inaccurate and tend to reflect the business entity in the most positive way possible. In the business world, it is important that financial statements accurately reflect the company's economic position. It becomes very dangerous for investors when companies do not accurately report their true financials.

One of the most impactful differences is that GAAP allows the use of the last in first out method when dealing with inventory, but IFRS does not allow the use of LIFO. The problem this causes is that companies that record their inventory using LIFO have to revalue their inventory which could create some tax liabilities, as well as becoming very time consuming. As GAAP and IFRS try to find middle ground, there has been a recent creation of the "LIFO Conformity Rule." Michael J.R. Hoffman explains, "That's the tax rule permitting use of the Last-in, First-out (LIFO) inventory method for tax purposes, but only if it is also used for financial reporting purposes" (Hoffman). U.S. companies currently using the LIFO method are reluctant to adjust to IFRS for this very reason. Inventory write-downs are also different under both systems. IFRS allows write-downs however; U.S. GAAP does not allow any write-downs for inventory.

Another difference between United States GAAP and IFRS is what is called revenue recognition. Revenue recognition deals with when and how revenues are financially reported. Under U.S. GAAP, there are specific guidelines about what should be considered revenue, how it should be measured and when exactly it should be reported. Conversely, IFRS's standards when it comes to revenue are not as thorough about when it should be reported. With looser guide lines in IFRS, it opens up for interpretation. This can lead to companies reporting higher revenue than those under more specific revenue standards. U.S. GAAP also provides clearer insight to specific industries whereas IFRS lacks industry specific guidance.

With these evident differences the need for a consolidated system of accounting standards becomes clearer. It seems the world is moving towards developing one set of rules, but these various differences present a challenge for which there is no clear answer. In some way all companies will have to change their books to adapt to the new set of rules. It remains to be seen what these rules will demand, but having uniform standards will present many long-term benefits to everyone.

Works Cited:
Barron, Jacob. "The Endless Switch From GAAP To IFRS." Business Credit 113.8 (2011): 4-6. Business Source Premier. Web. 27 Nov. 2012.
Hoffman, Michael J. R., and Karen S. McKenzie. "Speed Bump Or Barricade?." Strategic Finance 91.1 (2009): 34-39. Computers & Applied Sciences Complete. Web. 27 Nov

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