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
Article Source: http://EzineArticles.com/?expert=Richard_Prince
http://EzineArticles.com/?GAAP-Vs-IFRS&id=4056370
No comments:
Post a Comment