What to Look For in an IFRS Training Course

All professional accountants, regardless of the area in which they are practicing, need to keep up to date with the developments in the field. International Financial Reporting Standards (IFRS), is one of the most dramatic changes the accounting profession has witnessed in a long time.

There are a large number of seminars, conferences, and courses available to accountants and the list will only get longer as January 1, 2011 deadline approaches. Canada will be adopting IFRS by 2011; the US has not defined an exact date but convergence of US GAAP with IFRS is happening now. How does one choose between the seminars? Part of the answer, like with any other purchase, is cost, but cost is rarely a deciding factor. These days, everyone is busy and there is no greater disappointment than spending a day or two sitting in a class only to find out that time could have been more effectively spent doing something else.

Too many people register for a course just for the sake of taking some training without giving much thought to the specific details. In order to get the most out of an IFRS course, the first step for any participant is to determine he or she wants to learn. The differences between IFRS and GAAP are so substantial that it is not realistic to expect to sit through one or two days of training and become an IFRS expert. After all, it took more than four years of university education to learn GAAP. How would it be possible to learn the equivalent of international standards in just a few days? The more productive route is to first determine which areas of international GAAP you want to focus on and then find the course that offers the most selection in those areas.

If you are a novice to IFRS and want to understand some of the key differences between IFRS and GAAP, then you will want to look for a course that covers at least the following:

Fixed assets

Under GAAP, fixed assets are accounted for at historical cost and then depreciated regularly. Under IFRS, there is a choice of accounting method. Either a company can choose a cost model, which is very similar at the conceptual level to GAAP, or the company can use the revaluation model, a model which regularly revalues assets to their fair value periodically.

Impairments

Impairments are calculated differently under IFRS and GAAP. In Canada and the US, an asset is currently considered to be impaired when its book value is less than the future cash flows the asset expects to generate. Under IFRS, an asset is considered impaired if its carrying value is higher than its recoverable amount. The recoverable amount is defined as the greater of the asset's expected selling price (less costs to dispose) and its value in use, which is defined as the present value of future cash flows expected from the asset. By analyzing the definition of impairment, it is easy to see that impairments will be more likely under IFRS than under GAAP.

Impairment reversals

Under GAAP, once an asset is written down, its value cannot be increased, even if the conditions which caused the impairment reverse themselves. Under IFRS, the reverse is true. Not only are impairment reversals allowed, they are mandatory, should the conditions warrant them.

Cash Generating Units (CGUs)

IFRS has a concept called a Cash Generating Unit (CGU), a term which does not exist in GAAP. The standards define a CGU as "the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of cash inflows from other assets or groups of assets." (IAS 36) The concept of a CGU is used for impairment testing. In some cases, it may be difficult to isolate the cash flows from a particular asset from those coming from other assets. Usually in a business, assets work closely together to generate cash flows and it is hard to isolate the cash flows which come solely from one asset. Where assets cannot be tested individually for impairment, CGUs should be tested for impairment and then the assets written down proportionately.

Interest Capitalization

There are some small differences between interest expenses related to the purchases of assets. GAAP allows firms to either expense or capitalize the interest. Many firms choose to expense it immediately. IFRS requires companies to capitalize the interest and in addition, has much more detailed guidance than GAAP on how to do so.

Financial statement presentation

Last but certainly not least, IFRS has a different financial statement presentation than GAAP. In addition, the regulators recently issued a discussion paper which proposes to drastically change the look and feel of the statements from their current state. At first glance, a balance sheet doesn't look like it balances and looks more like a cash flow statement than a balance sheet. Of course, when one looks at the details, it is easy to see that the balance sheet still balances, although not at all in the same format that North Americans are used to seeing. Anyone who enjoys seeing assets balancing to liabilities plus equity on a balance sheet will need to change their expectations. There are also new statements required under IFRS. For example, the Statement of Retained Earnings is replaced by a more detailed Statement of Changes in Equity. In addition, there is a new statement required in the notes to reconcile net income to cash flow.

The above topics present some of the key differences between the two accounting methodologies that anyone seeking an understanding of IFRS should look to for in a course. However, the list above is certainly not comprehensive and there are many other differences which exist. It might also be worthwhile to look for a review of IFRS 1, the standard which describes the rules related to adopting IFRS for the first time. Finally, there are specific issues to various industries, such as oil and gas, utilities, and insurance. The first step in understanding IFRS is to understand the basics. Once that is done, the next step is to understand the particularities as they relate to one's specific industry.

How to make the most of your time in an IFRS course - By Karine Benzacar, MBA, CMA, CPA (Del.)

Karine Benzacar, MBA, CMA, CPA (Del.) (karine@knowledgeplus.org) is Managing Director of Knowledge Plus Corporation (www.knowledgeplus.org), an organization which provides IFRS training across Canada and the US.

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GAAP Vs IFRS Similarities and Differences

As the U.S. market is increasingly going global, with capital providers from other countries, and also many investment opportunities abroad. There is a need for one set of accounting standards for all the companies in this growing global economy. One set of standards would allow companies and individuals to compare financial statements of companies located all over the world. There are two main sets of accounting standards I will focus on. There is US G.A.A.P. the acronym for the (generally accepted accounting principals), and IFRS an acronym for (international financial reporting standards). IFRS is the accounting standard in over 100 countries globally. To help US companies enter the global market, the SEC has to decide to adopt IFRS or to converge GAAP and IFRS. There are many similarities between GAAP and IFRS, and my paper will focus on some of these similarities and differences.

When it comes to financial statements there are many similarities between US GAAP and IFRS, which is a good thing, when converted or adopted financial statements will be pretty much the same for US and international accountants. Under both standards a complete set of financial statements include a balance sheet, an income statement and some sort of statement pertain to non operating incomes and expenses. When preparing these statements, both GAAP and IFRS require them prepared in the accrual basis (expenses and revenues are reported in the period they are incurred) as opposed to the cash basis. Both GAAP and IFRS require companies use the same policies of accounting that they did in the prior year, un less they disclose in their statement any new policies. Also companies are not required to prepare interim reports.

When dealing with inventory both IFRS and GAPP use cost as the basic accounting principal. Both standards have the same definition for inventory. Inventory is assets held for sale in the ordinary course of business or to be consumed in the production of goods or services. Both standards allow different cost method approach like standard cost method and retail method. Also under both standards costs of inventory includes direst materials, direct labor, and overhead, while selling costs and general administrative costs are not included.

There are also some key differences in inventory costing methods. With US GAAP the last in first out or "LIFO" method is an acceptable method, under IFRS it is not. Under IFRS the same cost formula must be applied to all inventories. With GAAP inventory is valued at lower cost or market cost. While under IFRS inventory can also be carried at lower of cost, or it can be priced at net realizable cost. Under GAAP inventories can't be written-down, under IFRS inventories are allowed to be written down under pre-determined circumstances.

The definition of long lived assets is similar under both US GAAP and IFRS. They both roughly define long lived assets as tangible assets held for use, to be used for more than one accounting period. Long lived assets are depreciated in GAAP and IFRS

Both GAAP and IFRS have a section for extraordinary items listed on the income statement. Extra ordinary items are material gains or losses that are both unusual and infrequent and not part of a company's continuing operations. Extraordinary items can vary by industry and region. With GAAP these extraordinary items are separately listed, while IFRS puts them with all the other gains and losses included with operations.

Property plant and equipment is treated similarly under GAAP and IFRS but not exactly the same. Both of their definitions state that property plant and equipment as a tangible asset, held for the use of producing or storing goods, or for rental to others, or for administrative purposes. They are expected to be used for more than one accounting period. They both value these assets at their initial cost and can use the same deprecation methods. Under GAAP the historic cost principal is applied, the value of these assets remains the same over their life. On the other hand with IRFS these assets can be re valued at year end if there is a material change in market cost. When the assets value is changed under IFRS the deprecation will have to be recalculated with the new value of the asset.

There are many obstacles to overcome to merge GAAP and IFRS or to just simply adopt IFRS, but it needs to be done. The differences create barriers to do international business. The inability to accurately compare and analyze financials of companies that use US GAAP and those who use IFRS slows down globalization. Investors and individuals will not seek to do business internationally, that is why one set of uniform standards is needed.

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The Future of US Accounting - Similarities and Differences Between GAAP and IFRS

The United Sates will begin the switch from Generally Accepted Accounting Principles(GAAP) to International Financial Reporting Standards(IFRS) in 2014. This transition will bring significant changes in the way accountants treat, record, report, and interpret financial and other relevant industry information within U.S. and foreign companies. It is therefore important, before we begin to learn accounting in practice according to IFRS, that we inform ourselves about the key similarities and differences between GAAP and IFRS. Thorough research of web articles concludes that both systems of accounting have numerous similarities but have significantly more differences. Once completed, convergence will break down the accounting standards translation barriers that domestic and foreign firms currently have among their accounting processes and lead to harmonization in the accounting world.

Today, the majority of United States' businesses are involved in overseas markets and most foreign companies are already using IFRS. The Securities Exchange commission has recognized this and released a statement in support, in February of 2010, of the need for a universal, unified set of accounting standards to be followed, and that IFRS is the best suited set of standards to take on that role. The SEC also developed a road map to achieve this task of convergence and plans to make a final decision in 2011 regarding the definite incorporation of IFRS into the United States. The recent economic recession that affected the majority of the world is one such reason a global set of accounting standards is in need. Many worldwide capital markets were affected by the recession and this only strengthens the argument of the need for a unified set of accounting standards. The convergence of IFRS and GAAP will unify all companies in a common financial reporting language and will iron out any differences domestic and foreign firms encountered in the past. Before this convergence begins, it is important to have a discussion of a few of the major similarities and differences between IFRS and GAAP regarding the Financial Statements, Inventories, and Revenue Recognition so that we may begin to understand how greatly this convergence effort will affect us as U.S. GAAP users.

Before any interested party can begin to examine the internal workings of a company they usually begin in the same place, the financial statements. Financial statements are useful for a multitude of reasons to investors, creditors, directors, internal and external managers etc. and comparability of foreign and domestic financial statements is essential to the modern business. Fortunately, IFRS and GAAP already consider the same financial statements to be the accepted standard for reporting. Under both systems, the preferred statements are: the Income Statement, Balance Sheet, Other Comprehensive Income Statement which is called the Statement of Recognized Income and Expense under the IFRS system, the Statement of Cash Flows, and the Notes to the Financial Statements. Both frameworks require the accrual method of accounting be used with the exception for the Statement of Cash Flows. Both frameworks however, have their significant differences. GAAP allow comparative statements be issued or even a single year in some cases. The balance sheet must be presented with the two most recent years as a comparison and all other statements must cover a three-year period based upon the balance sheet date. Under IFRS, all reports must be released comparatively with the previous period. A standard layout of the balance sheet and the income statement is not necessary under GAAP however, public companies must follow specific rules. Under IFRS, there is no standard layout, just a list of minimum items that must be disclosed. Balance sheets under GAAP must present debt to be paid in more than one year as a long-term liability while IFRS requires all debt to be classified as current unless the agreement to pay the debt was made prior to the balance sheet date. Under GAAP, expenses are classified according to function. IFRS allows expenses to be classified according to function or nature of such expense. Extraordinary items must be unusual and infrequent in occurrence to be included in GAAP income statements whereas extraordinary items are prohibited under IFRS. This is certainly not an all-inclusive list of the differences between the financial statements under both of the frameworks. It is clear to see though, how even the slightest differences between a set of two financial statements, one IFRS and one GAAP, could lead a user of such statements into a troubling situation.

Most businesses in the U.S. and worldwide all have one aspect in common, inventories. Luckily, the basis for valuing inventory under IFRS and GAAP is cost. They both define inventory as assets held for sale in the ordinary course of business, in the process of production for such sale, or to be consumed in the production of goods or services. The cost of inventory is also supported by the money that was spent readying inventory for sale, such as freight-in. Likewise, the two standards have their differences when it comes to reporting inventories. Under GAAP, any cost method can be used for inventories whereas IFRS prohibits LIFO and requires the same costing method be applied to all inventory similar in nature. GAAP requires inventory be measured at the lower of cost or market value. IFRS states that inventory must be measured at the lower of cost or net realizable value. There are several more issues to deal with regarding inventories, in particular mark-down reversals of inventory under each system are different. There are currently no ongoing convergence efforts regarding inventory by the FASB and IASB.

The most important asset to a business, many say, is cash. Without cash the business will be in trouble when it comes time to pay off debts, make any capital expenditures, or simply get lines of credit. One of the ways of getting cash is from revenue into the business. Revenue is defined as the gross inflow of economic benefits during the period arising in the course of the ordinary activities of the entity when those inflows result in increases in equity except increases in equity from distributions from owners.

Under both sets of standards, revenue is not recognized until it is earned or realized(or realizable). When discussing the sale of goods, GAAP requires that there is a legal transfer of ownership and the goods have been delivered at a set price and the seller can reasonable expect payment. Under IFRS, revenue can only be recorded when the risks and rewards of ownership are transferred and the buyer has control of the goods. When recording service revenue, GAAP does not allow any up front revenue recognition if the services are to be performed over a period of time. Such revenue must be amortized. IFRS does allow the option to record the revenue all at once even if the services will be performed over a period of time. In regards as to when to recognize revenue for contingencies, U.S. GAAP requires companies to wait until the contingency is resolved before they record any revenue. IFRS does allow for contingent revenue to be recorded as long as certain mandatory requirements are met. This presents a problem because a company using IFRS could potentially record revenue earlier than it actually received the inflow of assets, misleading users of financial statements.

As one can see just by viewing the similarities and differences among these three categories, the task of convergence is going to be quite challenging. The two sets of standards both have their logic in some areas yet have their downfalls in others. Convergence will benefit the United States in the sense that our financial statements will be much more easily compared to foreign companies'. Though it may take some time and money to be completely unified in our financial reporting, the benefit to global accounting harmonization far outweighs the cost.

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What Is IFRS?

So, what is IFRS? Why does everybody talk about it? Why do we need it? And who uses it?

IFRS is an acronym for International Financial Reporting Standards. It is a set of principles and regulations for reporting many different operations in the financial statements.

Very much like USA uses US GAAP, Canada uses its own Canadian GAAP, Great Britain applies UK GAAP etc., the whole world will use its global GAAP - IFRS.

Why do we need IFRS?

Today, everything on the globe comes closer than ever before. All things are harmonizing and people study how to behave globally.

And really, it is clear in each move you make - it is possible to purchase the same products in any location, you can find similar meals in "Jack in the box" anywhere in the world and it is also possible to fly wherever on earth within one day.

Accounting together with financial reporting is not any exception. That is where IFRS has its own position - it will act as a harmonized group of regulations with respect to financial reporting around the globe.

Do you know the primary benefit of IFRS?

Here, in the globalizing planet, the crucial idea is the ability to compare.

Picture yourself as the owner of multinational company who wants to examine economic outcomes of your organizations from various areas. But - every single area applies its own bookkeeping guidelines!

Let's say that revenues are reported on accrual basis in some area, and on cash basis in a different location. How can you know which of your organizations reaches nicer revenues when these results are incomparable?

Or possibly, you are a tiny investor acting in the stock market. Investors usually review financial reports of their potential shares prior to buying. How can you read all the documents when everybody reports differently?

You get the understanding. IFRS gives us harmonized guidelines for bookkeeping and presenting the financial information, so that everybody understands financial reports from any place in the world. And not only this - if some corporation tries to get abroad funding or enter the stock exchange, it should prepare its financial reports in line with IFRS.

What countries present their financial statements according to IFRS?

Currently, more than 120 countries follow IFRS, some of them entirely, a few of them partially. In ideal case, IFRS should be implemented globally by 2015.

In fact, undoubtedly one of the key participants in the worldwide economy, the USA continues to use their own US GAAP. Under this circumstance, US GAAP and IFRS will converge and also gradually reduce dissimilarities. The IFRS convergence process should have been completed until 2012.

But, FASB (setter of US GAAP) and IASB (setter of IFRS) slowed up the convergence progress and latest due date is approximately 2015. Additionally, SEC (Securities and Exchange Commission) should have decided with regards to inclusion of IFRS for U.S. companies by the end of 2011, but the decision has been postponed by several months.

You can find helpful information, examples and free e-book about IFRS at http://www.ifrsbox.com - a site dedicated to online IFRS training: helping accountants, chief financial officers, finance students and anyone interested in understanding IFRS and its application in their daily job.

Silvia Mahutova, FCCA

Silvia is a founder of http://www.ifrsbox.com - the site helping accountants, financial analysts, chief financial officers and other interested people to understand IFRS and gain deeper knowledge about it.

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VIDEO: IFRS Overview

Change From US GAAP to IFRS

In this current world economy there are many business transactions that cross international borders. The regulations governing these business transactions are different depending on what countries are involved. The fundamental accounting principles do not change but the specific rules and regulations vary accordingly. The main regulating bodies are the U.S. Generally Accepted Accounting Principle (GAAP) and theInternational Financial Reporting Standards(IFRS). Many companies and some countries are making the necessary changes to the way they do business in order switch to IFRS or create a similar system to IFRS.

In the U.S. the Securities and Exchange Commission (SEC) has been debating whether or not to consider the change from GAAP to IFRS since 2002. International companies were allowed by the SEC to follow IFRS and no reconciliation to GAAP. That regulatory decision was in 2008 so it was a sign that the SEC is considering a change. By establishing this precedent for international companies allows them to follow both set of accounting rules without requiring reconciliation to GAAP; this puts domestic U.S. firms at a competitive disadvantage. In response to this many U.S. companies expressed a desire to switch to IFRS before such a change is legally mandated or permissible. Even though there are significant differences between GAAP and IFRS many accounting experts believe over the past 10 years the two regulatory regimes have been brought into closer alignment with each other.

IFRS is required to be used by the corporations whose home nation state is a member of the G-20, which includes the United States. IFRS demands more transparency than GAAP. It requires any compliant company to disclose accounting policies, judgments and estimates, as well as additional qualitative and quantitative information related to significant accounting transactions. Making all of these requirements mandatory the IFRS is more complex but it is also harder to hide an accounting error as untraceable. IFRS is not just specifically for accounting regulating even though accounting falls under the three categories which are accounting policies and procedures, contractual agreements and covenants and management incentives and compensation linked to financial reporting. The change for U.S. businesses from GAAP to IFRS will cause the current accounting rules and regulations would be reviewed to see how far off they are from IFRS. One of the GAAP differences with IFRS would be the way organizations account internally on their financial reporting. That will trigger a major decision by high ranking accounting officials making judgment calls on the array of potential solutions that will best for the company involved.

With profound changes to your accounting regulations your current practice will be affected. Many business people may want to change the system but it will hard to adjust. In GAAP it defines revenue differently than IFRS would. In GAAP there is over 100 different pieces to define revenue while IFRS is more of a guideline. That can cause some eyebrows to be raised because if there is only a broad guidance and little application of specific detailed instruction. Not having a more concrete rule can make things easy to manipulate and obfuscate. On the other hand the IFRS has worked for many other nations so less rules to confuse an accountant because he or she does not have to look to see their company is meticulously abiding by each aspect of each rule but addressing the spirit of the each rule. All the differences will not matter if the people in power disagree on how to make the changes.

Last year the U.S. rejected adoption of IFRS. It was hoped to have IFRS standards replace U.S. GAAP by Christmas of 2011, however sadly it failed to happen. The chairman Hans Hoogervorst IASB and Leslie Seidman chairman FASB were disputing whether the name should remain U.S. GAAP. Also, Seidman also wanted to give the United State the right to create the standard. With these hold ups it will make observers wonder what is true reason why the United States has not adopted IFRS. Multinational companies are impacted the greatest since they need to do business in the United States you must follow U.S. GAAP, beyond the U.S. border IFRS and whatever accounting rules that is native to the specific foreign nation apply.

The U.S. GAAP and IFRS both discourage illegal activity. The change is coming not as fast enough for the interested parties. If the change came very quick however, red flags would be raised because it is human nature to maintain the status quo and suspect hidden wrong doing in the process. Business men and woman in the world will have to hope and pray that this long delay is going to produce a system that will facilitate doing business transactions internationally. Your guess is as good as mine to determine when U.S. GAAP and IFRS will match or have a new system that will be better than the two current accounting rules; all I can say is stand by and expect the unexpected.

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Why Convert to IFRS?

For many years now there has been a debate going on in the accounting world of whether or not the United States should convert from generally accepted accounting principles (GAAP) to international financial reporting standards (IFRS). Hundreds of countries around the world are already using IFRS and more are getting ready to convert. Companies today are working in a global economy and having different reporting standards can be both inefficient and expensive. In an environment where more companies are doing business globally and competing globally, US will be at a distinct disadvantage if we do not convert to IFRS. I believe that there are more advantages than disadvantages in converting to IFRS. IFRS will make companies more efficient, provide consistency and higher quality of financial information for comparing companies globally, and raise capital more quickly.

Many people believe that because there is no agency that will enforce the IFRS regulations consistently there is a higher risk for fraud. Unlike GAAP, which is monitored by the Security and Exchange Commissions (SEC), IFRS is not. They believe that no global agency will closely monitor for fraudulent financial statements which will lead to overall uncertainty regarding financial statements. This argument, however, is not very effective since Internal Accounting Standards Board (IASB) does supervise IFRS, albeit, not as closely as the SEC supervises GAAP. In order to get capital, companies need to be transparent in their financial statements and these statements must be trustworthy. Investors and the general public understand that it is in the company's best interest that financial statements are reliable and error free. In order to make these financial statements reliable and free of fraud they must be monitored. In order to monitor such large number of companies there need to be organizations which oversee them in a consistent manner, thus the emergence of IFRS regulatory institution. Due to the need for accuracy, once IFRS is in place, a supervisory system will most definitely be put in place because it is essential to validate the information being provided. At this time we do not have an organization overseeing the IFRS very closely but once IFRS becomes the common accounting practice they will come into existence and therefore this argument will be moot.

Another argument against conversion to IFRS is the amount of time and resources it will take to do the actual conversion. Although the initial cost of converting is large, in the long run, it will benefit the company by creating more opportunities by making it more cost effective in the long run. It will also take a substantial amount of time to convert to IFRS completely, depending on the size of the company. This initial investment of time will pay off in the future because most accountants believe that the accounting field needs to catch up to the global economy and become global also. Therefore, it is almost certain that some sort of international accounting standards will eventually be put in place, it is only a matter of time.

Despite the objections, most people are in favor of converting to IFRS. One of the most often cited reasons to convert to IFRS is that having one reporting standard throughout the company will be more efficient. Many multinational companies with subsidiaries in other countries already use IFRS and for them this switch will help to make them more competitive. Although the switch will cost the company a large amount initially, the company will save money in the long run. For example, companies will no longer need to waste time or resources to learn different standards or keep current in them.

Educating and training employees will also become more focused which in turn will make the quality of their work much higher. Higher quality of work means less chance of errors, therefore, more proficient use of company's resources. Companies will also save money in preparing and auditing costs.

Another reason that converting to IFRS is advantageous is that comparing financial statements will be easier for companies, investors and the public. In today's global economy the consistency of one reporting standard will make it more efficient for investors to research and compare financial statements globally and more effectively. Consistency is essential to making informed and educated business decisions. Using one accounting language globally will help people to understand the financial statements better. This ease of comparison will help companies to obtain funding from investors more quickly.

Reliability of the financial statements, the ease of comparability and proficiency will make the companies more attractive to investors. Because investors will be using only one accounting language they will be able to get a better understanding of the financial statements. IFRS will make the process simpler for both the companies and the investors and the companies will also be able to obtain loans from various institutions more easily. Investors will also be able to provide funds to businesses at a lower cost to the investor. Overall, there are more advantages to converting to IFRS than there are disadvantages. The world's economies are becoming more integrated and having one accounting system will make life a little less complicated for both the companies and the investors.

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IFRS 13 Fair Value Measurement

IFRS' Proponents Versus Opponents

By Dilaila Diaz

As the world continues to shrink through the use of technology, companies have the need to conduct their businesses internationally. This need increases for any company that wishes to enter into a new global market. This new global market demands a simple and unique international accounting standard. However, an innovation has been occurring across borders in how businesses are reporting in a single accounting standard. This innovation is called International Financial Reporting Standard (IFRS).

Today, U.S. Securities and Exchange Commission (SEC) has faced a dilemma in making IFRS an option or even mandatory. It could affect some components of Generally Accepted Accounting Principles (US GAAP) mostly in the areas of revenue recognition, inventory (no LIFO), equity, and statement of cash flow. However, it could benefit U.S companies to obtain an international accounting standard due to the increase in globalization. In other words, it could help businesses to expand and grow globally. Should SEC consider it? Like all changes, moving over to IFRS has its proponents and opponents.

IFRS is a set of accounting standards originated in London by the International Accounting Standards Board (IASB). IFRS began operations in 2001. Since then, approximately 120 countries allow or require the use of IFRS, which is expected to be implemented in other countries as well. Many proponents consider the switch to IFRS to be inevitable. Why is this? With the globalization, IFRS could be beneficial to make a single worldwide accounting standard. This means that companies can submit their financial statements in the same way that their foreign competitors do, making comparisons easier to interpret across borders. Another significant point is that IFRS helps to reduce the time of preparing financial reports according to different standards and regulations.

IFRS might also cut costs, especially for multinational companies that must file financial reports under different systems. In fact, it proves a lower cost of capital. According to IFRS, its principal objective is being a single accounting framework or "language" aiding companies to prepare, display, and disclose their financial statements in a simpler manner. For example, if all companies report under IFRS, this would create one "language" that can be used worldwide. Because more countries have been reporting under IFRS, U.S companies are able to obtain financing and sources from other countries.

However, the switch to IFRS is a great challenge. While the proponents indicate that IFRS is a positive change, the opponents say that it is unnecessary. First, Financial Accounting Standards Board (FASB) and SEC could be considered as secondary, transferring the authority to the IASB. As a result, the US government does not prefer this option. Second, if U.S. GAAP is replaced, it leads to higher costs, such as re-education, re-training of employees, and implementing a new system. Opponents indicate that companies should have a training plan not limited to the accounting department, which could be costly. The transition would take months to complete, and it is more complex and lengthier than anticipated, such as the experience of some European countries. Among other issues, the larger the company is, so the greater cost is expected during the transition.

One great difference is that US GAAP is rule-based while IFRS is principle-based. According to the opponents, US GAAP delivers a high quality of securities regulations and accounting standards in its financial reporting. In other words, the GAAP is a "room of interpretation" which is better to project the performance of a company. To be GAAP rule-based, it might minimize the threat of lawsuits to accounting firms. IFRS does not guarantee a modification of the US legal system; consequently, accounting firms might be more prone to lawsuits according to the opponents. They indicate that unless the legal system changes, accounting firms need guarantees of protection to avoid lawsuits when accounting firms integrate IFRS.

I am not for or against switching to IFRS. As a future accountant, if changes come, I must adapt to these changes. First, if the benefits exceed the costs, then IFRS should be a good option. Second, if companies have the same system of preparing their financial reports, then this system could be attractive for any US companies that seek to attract foreign investors. Third, I agree with opponents when indicating that accountants need guarantees not to be threatened of future lawsuits. In addition, if the change occurs, I need a re-education. Then my questions are: Should I pay for my re-education? How many months or years do I need to complete my re-education?

SEC has a great challenge on its hands. There is no timeline when IFRS could replace US GAAP. However, one thing for certain is that each year more countries allow or require IFRS, conducting their businesses internationally. Should IFRS implementation be voluntary or obligatory? I do not know. However, any decision that the SEC takes is because that decision is the best for the U.S economy and accounting firms.

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The Pros and Cons of Adopting IFRS

By Ashlley Jarmari

International Financial Reporting Standards (IFRS) is a set of accounting standards developed by the International Accounting Standards Board (IASB).

IFRS has been adopted by more than 12,000 companies in over 100 nations and is becoming the global standard for the preparation of financial statements of public companies throughout the world. However, in the U.S., GAAP (General Accepted Accounting Principles) is applied. Recently, the G20 leaders have called for significant progress towards moving to one set of high-quality global accounting standards. President Obama also called for one set of standards and substantial progress to be made in 2009. Now SEC is working on an updated "roadmap" that will layout a schedule and major milestones for moving U.S. towards its adoption by all U.S. public companies. There are advantages and disadvantages of converting to IFRS, and various arguments have made for and against its adoption.

A single set of accounting standards will provide comparability, and enable companies from different parts of the world to apply the same standards. It increases transparency, allowing easier cross-border investment with greater liquidity and low cost of capital. It will also cut down the time and costs of preparing financial statements according to different standards and regulations, achieving enormous savings of capital in the longer term. The transition cost is estimated to be 8 billion dollars for the entire U.S. economy, with average one-time cost of $3.24 million dollars for multinational corporations. Since the financial reports were reduced from three to one, they will save money in the long run. The adoption of IFRS and use of uniform accounting standards will also eliminate the possible different accounting results from applying different standards and help investors to pursue various strategies including global investment diversification.Many companies may soon be required to report in multiple accounting standards if the US does not either accept or move toward IFRS. Maintaining multiple standards reporting only increases accounting and auditing costs and provides no value to any country. Over 100 countries have adopted or in the process of adopting IFRS. Delays in adopting IFRS by the US will make multi-national companies to report their primary reports in IFRS, resulting in parallel reports in US GAAP.

This will create more auditing fees and possible errors. The US should move towards the IFRS standards as a matter of urgency. As more and more countries adopt IFRS, it is in the U.S. interests to apply the same accounting standards. Most of the U.S. companies will benefit from one set of accounting standards since are multinational companies and they operating globally. IFRS will make it easier to control and monitor their subsidiaries in foreign countries and achieve cost savings from maintaining several accounting standards. It can also help to eliminate potential financial misunderstandings and simplify investment decisions. With its strong moral standard, intolerance for unethical behavior, the US has been a world leader for centuries. Its financial and accounting standards have been used by other countries as a yardstick to measure their economic and financial success until recently. We need to be a leader and the driving force in establishing and adopting international standards.

It is the time for us to get involved and play an important role in shaping the international standards. Otherwise, it will hurt us in the long run. Competition works and is a good thing because it will ensure better quality with lower price. Competition between different sets of standards will offer the advantage of getting better information. There is really no one size fits all standards. The uniform single accounting standard can stifle innovation, ingenuity, competition, creativity and capitalism entrepreneurship. The differences between GAAP and other countries' standards can be very useful and provide insight into the reasons and values they conduct financial reporting in a particular way. By focusing on our differences, we will benefit from increased productivity, higher quality, technological innovation, thus better meet the demands of the marketplace. Switching to IFSB will give IASB monopoly status, with the potential to compromise the quality of the IASB standards. A recent survey shows that to convert to IFRS, U.S. companies have to pay more than their European counterparts. The added benefits of comparability versus cost to implement IFRS will not justify the adoption.

According to the SEC, it will cost.12% of revenues to implement the standards nationwide, which means the cost can be as high as several billion dollars. The cost to achieve the additional comparability is not worth several billion dollars. It will drain on our slowly recovering economy. From a cost benefit perspective, convergence is obviously superior to adoption. Transition to IFRS itself can present be a lot of challenges. The economy of the U.S. is the largest in the world and nobody knows exactly the scope and magnitude of applying IFRS to such a large economy. IFRS has not been tested in any country like the U.S. On the other hand, U.S. GAAP has been evolving with various changes in the U.S. and stands the test of time, especially the frauds such as Enron and Tyco International.

Enforcement can also create some problems. While the U.S. has effective enforcement, it is very challenging to implement stringent enforcement among those member countries due to the differences in economic and political system among the adopting nations and their financial reporting practices. In summary, adopting IFRS will provide comparability, increased audit efficiency, reduced information misunderstanding and cost savings as more and more economic activities become globalized. The flip side is it will eliminate competition and incentives to innovate. The quality will suffer since compromises have to be made to achieve consensus due to various political pressures and economic interest. However many support for a move to a single set global accounting standards and it is believed that the U.S. will ultimately IFRS or have IFRS and U.S. GAAP coexist.

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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IFRS Is More Beneficial Then GAAP for Global Accounting

By Margaret Fiorella

Currently, the United States' firms use GAAP for standard accounting procedures. As technology grows, and the world becomes smaller many nations believe that a global accounting procedure would be beneficial for everyone. Many nations have already adopted international financial reporting standards, but it is still controversial as to which system will provide the most accurate accounting practices.

The US Generally Accepted Accounting Principles, GAAP, is a very particular and thorough rules based system that provides a detailed guidance on how an entity should behave, and report its earnings. This system provides a detailed set of instructions on how businesses should report their financials based on the forms, not on the substance of what is being reported. "The goal of GAAP is accordance with GAAP," and failure to comply with the set standards will result in legal ramifications (Phillips 612).

International Financial Reporting Standards, IFRS, is a principles based system that provides an entity with a broad direction, but allows the flexibility to choose a course of conduct. "The goal of IFRS is to give a fair view of a company's financial position," and this often times requires management to make judgment calls, assumptions, and estimates of what it should report (Phillips 620). The IFRS "increases comparability between companies around the world, which ultimately reduces the cost of capital" (Castaldo). The European Union is already using the IFRS accounting procedures to simplify the ability to compare firms internationally.

IFRS is often criticized because it is easier to commit accounting fraud under this system than under GAAP. Also, there is a high expected implementation cost for all entities. The companies will lack expertise with the system, and auditors will have difficulties accepting conflicting policies of companies within the same industry. The users of the financial information will then lack confidence and knowledge with the new system, which will result in more training costs so that they can properly analyze the information. Schooling is another concern; the entire accounting curriculum would have to change.

Revenue recognition, uncertain tax positions, and consolidation of special-purpose entities are three major concerns the experts have regarding IFRS. Under IFRS it is understood that revenue only needs to be recognized when risk is transferred. There is only a broadly stated directive with very little micro regulation. This leaves many experts uneasy since GAAP has a very detailed four factor test on revenue recognition, and a lot of regulation. Also, the IFRS does not address uncertain tax positions as specifically as it should; tax positions are adjusted as seen fit or disregarded. This causes a problem for experts since tax provisions can have such a significant effect on a company's financials. GAAP however does provide strict guidelines for tax provisions. Lastly, special purpose entities, SPE's, "are commonly used only as a method of keeping debt off of the balance sheet of the sponsor company" (Phillips 622). GAAP requires that the financial statements of the SPE be included with the sponsor company's financials unless a series of specific requirements are met. IFRS only requires the SPE's financials be included if the SPE is under the sponsor company's control; there is a specific set of requirements for control, but it is still much up to the manager's discretion.

While IFRS has many benefits concerning international accounting comparability there are a number of legitimate concerns by the experts. There are very high implementation costs, a high risk for fraud, and a great amount of room for error considering the amount of leeway given with reporting. As the world becomes smaller, and international business is becoming more common it is necessary to have some sort of common accounting reporting to simplify the decision process for businesses when looking for international business partners. While GAAP works well for the United States, and works hard to try to prevent fraud this may no longer be the best method.

The IFRS could be the best method of accounting procedure if there were more specifications made. Revenue recognition needs to have higher standards so there is no question as to when it needs to be recorded. This would help fight accounting fraud. Also, individual industries need to be sure all companies follow the same standards. Since there is so much freedom with reporting under IFRS individual industries need to be sure the companies' financial statements are comparable. One of the biggest issues with IFRS is the lack of specification with reporting tax provisions; this will cause a significant discrepancy with financial statements.

Since the United States deals so much with international business IFRS should be implemented in this country. Implementation needs to be done carefully though to avoid confusion by users, auditors, educators, and students.

Castaldo, Joe. "Accounting for Trouble?." Canadian Business 84.1/2 (2011): 15-16. Academic Seach Complete. EBSCO. Web. 15 Feb. 2011.

Phillips, Lance J. "Implications of IFRS on the Functioning of the Securities Antifraud Regime in the United States." Michigan Law Review. 108.4 (2010): 603-631. Academic Search Complete. EBSCO. Web. 15 Feb. 2011.

"US GAAP & IFRS Convergence." PricewaterhouseCoopers LLP. 2008-2011. 15 Feb. 2011. Http://www.pwc.com/us/en/issues/ifrs-reporting/ifrs-gaap-convergence.jhtml.

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VIDEO: Deloitte - What is IFRS?

IFRS Vs US GAAP

By Yaritza Zayas

In the world of accounting the word 'convergence' has become very popular. Convergence describes the elimination of differences and it has become a priority for both the International Accounting Standards Board (IASB) and the US Financial Accounting Standards Board (FASB). Both the IASB and FASB understand that there is a lot that needs to be done in order for both of them be able to converge the two sets of standards. The goal of the FASB and the IASB is to decrease costs for multinational corporations and to give investors the opportunity of making suitable comparisons between companies across different countries, and this requires convergence. By adopting IFRS, companies can present its financial statements in the same form as their foreign competitors. This would benefit companies with subsidiaries in different countries that also allow IFRS since they will be able to use the same accounting language. On the other hand, many people in the accounting world believe that there are a couple of disadvantages of adopting IFRS. They believe that US GAAP is the gold standard and that if we fully accept IFRS in the US we will lose a certain level of quality and that the cost of implementing IFRS can outweigh the benefits.

The projects toward convergence are significant and will help all countries achieve the same accounting framework. A common accounting framework is essential in the accounting profession and it is a necessary part of the globalization of business and investment. The main question that arises when discussing GAAP vs. IFRS is where the two sets of standards are similar and also where they diverge. IFRS or International Financial Reporting Standards are a set of accounting standards that were developed by the IASB that is becoming the global standard for the preparation of public company financial statements. Many people in the accounting profession also wonder why do these differences exist and what could be done to eliminate them, if they are ever eliminated.

First, before explaining the differences that exist between the two sets of standards, we have to make it clear that while the US and international standards do contain many differences, they have far more similarities. The IFRS is mostly grounded on the same fundamental principles and shares similar accounting results and conceptual framework as the US GAAP. What sets the international standards apart from the US standards is that it contains elements of accounting standards from a range of countries. When creating these standards the IASB was able to look at the US standards and determine where it could make changes to avoid some of the apparent problems in the US standard. In other words, it was able to take a new approach to the existing US standards and make an effort to improve them. This explains why the major difference between the IFRS and US GAAP is basically the deviations of the standards from US requirements. Other differences have been developed through different interpretations. The IFRS generally has broader standards than the US GAAP and prefer to leave implementation of the principles to preparers and auditors.

Many wonder if the differences between these two sets of standards will ever be eliminated. Both the IFRS and US GAAP have made major efforts to achieve that goal. In 2002, they signed the "Norwalk Agreement" in which they made an agreement and commitment to work towards the convergence of the two sets of standards. The Securities and Exchange Commission has played a major role in the proposed roadmap of the convergence. Until the SEC issues a rule allowing the convergence of the US companies to IFRS, companies must continue to follow the US GAAP. The SEC hopes to have all companies adopt IFRS beginning in 2014 and have US issuers report under this new system by 2015 or 2016. However, we must realize that convergence does not mean all differences will be eliminated. They may continue to exist in standards even when convergence has been made.

Finally, once the Securities and Exchange Commission determines when to incorporate IFRS, a possible timeline will be used to follow the next steps in the IFRS adoption. Many large companies like Pricewaterhouse Coopers support the FASB and IASB convergence efforts; however, they also understand that convergence alone will not result in a single set of high quality standards. However, we have to be aware that conversion to IFRS is not only an accounting exercise. The convergence will affect many areas of a US company's operations. Information technology systems, internal reporting, and tax reporting requirements are just a few examples of these areas.

By Yaritza Zayas
Accountants, A. I. (2011). IFRS FAQs. Retrieved 04 01, 2011, from AICPA IFRS Resources: http://www.ifrs.com/ifrs_faqs.html
LLP, E. &. (2009). US GAAP vs. IFRS. Retrieved 04 01, 2011, from Ernst & Young: http://www.ey.com/US/en/Issues

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VIDEO: IFRS 9 Financial Instruments

US GAAP Vs IFRS: What Are the Benefits and Differences?

By Amanda S Barr

Separate from other countries, the United States has always followed its own way of doing things. For example, the U.S. was the only country to have a uniform color for their currency; green. However, other countries color-code their currency to differentiate their denominations. Our green colored dollar bill originated back since the nineteenth century and up until the 2000's, we are now beginning to see American bills with multi-colored ink. Up until the 2000's, the United States was stuck in its own ways and comfortable with their consistent green currency until they realized printing with multi-colored ink would help differentiate their bills; all while other countries recognized this long before. Just as the United States had their own way of presenting our currency, the same goes for setting our accounting standards. The U.S. has followed Generally Accepted Accounting Principles, or GAAP, as their means for presenting financial statements, while other countries follow the International Financial Reporting Standards, or IFRS. Historically, the United States has been the most adamant about maintaining its own U.S. GAAP, however recently the Security Exchange Commission (SEC) has agreed to the adoption and the execution of the IFRS in the U.S. The SEC has recognized the outweighed benefits associated with using equivalent accounting standards among all countries despite the differences between the two.

While more and more businesses are transitioning to a global economy, by adopting IFRS, all businesses worldwide will present financial statements on the same basis and foundation. This, in turn, will give U.S. businesses a competitive advantage with its foreign competitors since equivalent disclosure of companies' financial performance will be more comprehensible and easier to compare to investors, businesses, and the general public. As indicated by Professor David Albrecht, "If every country has a different set of financial standards, while multinational companies exist in different countries, it is difficult to compare how each company stands because there is no consistency. Consistency is a key factor in comparing statements". IFRS will also make it easier for companies to initiate partnerships, implement cross-border acquisitions, and develop cooperation agreements with foreign entities. Also, companies with subsidiaries in countries that either require or permit IFRS may be able to use one accounting language company-wide. Companies also may need to convert to IFRS if they are a subsidiary of a foreign company that must use IFRS, or if they have a foreign investor that must use the international standard. Another apparent benefit of adopting this is that companies will have the advantage of increasing capital overseas. All of these advantages, in addition to many others, will tremendously assist in a company's overall position and performance in the global economy.

Although the switch to IFRS will be beneficial for U.S. companies, some people believe the switch will leave the U.S. at a disadvantage because of the many differences between our current accounting principles and IFRS. To be clear, U.S. GAAP is a codification of how CPA firms and corporations prepare and present their income, expenses, assets, and liabilities on their financial statements. It is not a single accounting rule, but is rather the accumulation of many rules on how to account for various transactions. When preparing financial statements using GAAP, most American corporations and other business entities use the many rules of how to report business transactions based up these various GAAP rules. The rules and procedures for reporting under GAAP are complex which have developed over a long period of time. On the other hand, the IFRS is considered a "principle based" set of standards in that they establish broad rules as well as dictating specific treatments.

There are specific differences in the two accounting standards. According to the IFRS website, the most significant difference between U.S. GAAP and IFRS is that IFRS provides much less overall detail. For example, its guidance regarding revenue recognition is considerably less extensive than U.S. GAAP. IFRS also contains relatively little industry-specific instructions. Also, IFRS does not permit Last In, First Out (LIFO); the only acceptable method to account for inventory is First In, First Out (FIFO). IFRS also uses a single-step method for impairment write-downs rather than the two-step method used with U.S. GAAP, which makes write-downs more likely. The IFRS also does not permit debt for which a covenant violation has occurred to be classified as non-current unless a lender waiver is obtained before the balance sheet date. To note some other differences, U.S. GAAP acquires intangible assets recognized at fair market value. On the contrary, IFRS recognizes intangible assets if they are likely to have future economic benefit and are measured according to their reliability. Additionally, U.S. GAAP allocates costs to individual assets while IFRS's initial measurement is simply at cost (International Financial Reporting Standards).

From an overall standpoint, it is my belief that the U.S. GAAP is calibrated to handle financial situations at the present moment and that the IFRS is more geared to focus on everything, leaning more to a better financial future. I believe that despite these differences, the U.S. will greatly benefit when we adopt an international set of accounting procedures. Just as the U.S. is now following other countries in respect to differentiating currency, I believe now is the appropriate time to follow other countries and adopt internal accounting procedures.

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GAAP Vs IFRS in My Research

By Chelsea M Brand

Accounting is defined as "the process of communicating financial information about a business entity to users such as shareholders and managers." Financial statements include income statements, balance sheets, and statement of cash flows. As one could image, there are many aspects that can go wrong in this process. Standards of these financial statements had to be set. Depending on the company or the accountant, one may use the generally accepted accounting principles (GAAP) or international financial reporting standards (IFRS). There are some differences between these considering the United States primary uses GAAP while internationally one may use IFRS.

GAAP has been set by the American Institute of Certified Public Accountants with regulations. The board was first created in 1939 with different names. In 1973 it was named in which we now know as the financial accounting standards board (FASB). Anyone on the board is required to leave if a statement would lead to misleading information about the company itself. Organizations such as the United States Securities and Exchange Commission, American Institute of Certified Public Accountants, Financial Accounting Standards Board, and Governmental Accounting Standards Board have influence on the development of GAAP in the US.

GAAP consists of five basic principles. The principle of regularity enforces rules and laws. The principle of consistency says that a business will follow their fixed method all throughout their similar items. According to the principle of sincerity, the statements should reflect the real financial information about the company. The principle of permanence of methods allows the contrast of the financial information. Materiality concept depends on the state and size of an item. Items will only be considered material if it affects a set of accounts.

IFRS are made to make company accounts understandable internationally. IFRS began as the International Accounting Standards (IAS) that began in 1973 by the board of international accounting standards committee (IASC). In April 2001, the IASC board's first meeting continued to develop standards that became the IFRS. IFRS are used across worldwide. Many countries that use IFRS include the European Union, India, Hong Kong, Australia, Malaysia, Pakistan, Russia, South Africa, Singapore, and Turkey. In August 2008 it was reported more than 113 countries require IFRS reporting.

The list of the standards continues to go on and on about anything one could think of. The IFRS does authorize three basic accounting models. These models include current cost accounting, financial capital maintenance in nominal monetary units, and financial capital maintenance in units of constant purchasing power. All three consider the possibility of inflation and deflation. Like the GAAP, IFRS relies on the materiality and realistic representation of the financial statements.

As it was stated, there are some differences between these two standards. It was stated in an Accounting Today article by Barry Jay Epstein two terms used could be debatable. The statement was said, "It is probable that the temporary difference will not reverse in the foreseeable future." When it comes to the IFRS the term probable is used twenty eight times in the standard and is generally used for greater than fifty percent when an event is more likely than not to occur. The percentage is high for the GAAP as well, but it has a probability of eighty five percent or greater. With these definitions, the IFRS standard shows a lower onset for non-accrual tax obligations than GAAP. As the term "foreseeable future" is stated, this implies a larger timeline under IFRS than GAAP. This makes it simpler for management to declare earnings in the foreseeable future under IFRS than it would be to have the objective to reinvest these earnings aboard according to GAAP.

According to publication published by the PWC website, there is a difference when it comes to revenue recognition between GAAP and IFRS. GAAP guidance is widespread. However, it focuses on revenues being realized and earned. It states revenues should not be cognized until an exchange has occurred. This is a general concept as the standards are very detailed. IFRS say two primary revenues standards confine all transactions within four categories that include sale of goods, rendering of services, others' use of entity's assets, and construction contracts. These categories clued the probability that the benefits associated with the transaction will flow to the entity and can be measure reliably. Additional recognition criteria are applied within each of the categories.

Ernst and Young state the difference between GAAP and IFRS when it comes to inventory in a publication on "financialexecutives.org". Noteworthy differences include costing methods, measurement, and reversal of inventory write-downs. GAAP says LIFO (last in, first out) is an acceptable method, as IFRS says LIFO is prohibits. Same cost formula must be applied to the inventories as it is not required in GAAP. Inventory is carried at the lower of cost or market in GAAP. IFRS says inventory is carried at the lower of cost or net realizable value. Any write-downs to the lower of cost or market make a new cost basis that cannot be reversed in GAAP. IFRS says previously recognized impairment losses are reversed up to the original amount.

The generally accepted accounting principles and international financial reporting standards may have the general concepts in common, but they also have major details in difference. Because the IFRS is used internationally, one could assume there are going to be differences, considering accounting is all based around money when internationally we do not use the same currency. The list goes on and on between the differences. The boards are currently trying to merge the two standards together to make it simpler on the accountants.

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The Major Differences Between GAAP and IFRS

By Melissa L Breneman

GAAP, or Generally Accepted Accounting Principles, are the accounting rules that are used to present financial statements for public or private companies, non-profit organizations, and government authorities in the United States. IFRS, or International Financial Reporting Standards, are designed so that companies all over the world can compare financial statements with each other. Both bodies have similarities and differences with one another. The United States is the only place that uses GAAP, which can make it difficult to compare numbers to an international company. However, many large businesses in the United States use IFRS as well to match up against their international competition. There are five major differences between GAAP and IFRS. They are revenue recognition, financial assets, impairment of assets, intangible assets, and inventory.

When dealing with revenue recognition, GAAP uses concepts, while IFRS uses standards, making the two hard to compare. With GAAP, revenues may need to be amortized over a period of time, but with IFRS revenues can be recognized immediately. Contingent revenues are also handled differently between the two bodies. For GAAP, revenue cannot be recognized until the amount is set. For IFRS, contingent revenues can be recognized when the amount can be accurately estimated and when it is probable that the revenue will bring benefit to the business.

GAAP discusses the treatment of financial assets numerous times throughout different sections. IFRS, however, only has two standards dealing with financial assets, one for disclosures, and one for other issues. One of the major parts of dealing with financial assets is classifying them. GAAP uses legal form in classification, while IFRS organizes them based on their nature. Another big part of dealing with financial assets is when to take them off your financial statements. GAAP removes an asset when the control over it has been relinquished. IFRS looks into whether there was a transfer of assets with the rewards being passed.

GAAP uses a two-step process when testing for impairment. The first step is to decide if the carrying amount of the assets is more than the undiscounted future cash flows. If it is, then go onto the next step, which is to calculate the impairment. Impairment is equal to the amount the carrying value exceeds the recoverable amount. For IFRS, impairment is decided if the carrying value is more than the greater of the discounted cash flows or the fair value adjusted minus any disposal costs.

Both GAAP and IFRS consider intangible assets to be nonmonetary assets that do not have any physical substance. There are three major differences between the two bodies when it comes to dealing with intangible assets. The first is involving development costs. Under GAAP, development costs are expensed when they are incurred. Under IFRS, development costs are capitalized. When GAAP is dealing with advertising costs, they are either expensed as incurred or expensed when the advertising is put in place for the first time. When IFRS handles advertising costs for intangible assets, all costs are expensed when incurred. Using GAAP, revaluation is not allowed for intangible assets, but under IFRS, revaluation to the fair value of the intangible asset is permitted.

Another issue the two bodies handle differently is inventory. When using GAAP, the costing method of LIFO is acceptable, but under IFRS, LIFO is not acceptable. This creates a challenge if GAAP converges to IFRS because taxpayers are required to use the same accounting method in financial reporting and taxation. Companies currently using LIFO could be violating the conformity requirement if they are forced to change their costing method because of a change to IFRS. GAAP recognizes inventory at a lower of cost or market while IFRS recognizes inventory at a lower of cost or net realizable value. GAAP also states that the lower of cost or market adjustments cannot be reversed, while IFRS says under certain conditions, the lower of cost or market adjustments must be reversed.

Although there are numerous differences between GAAP and IFRS, the two bodies have the same overall purpose of trying to keep all financial records of companies accurate. There has been a large amount of discussion of whether the United States will convert to International Financial Reporting Standards, which would make it easier to compare our financials to overseas companies. Whether that day will come, we have no idea.

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IFRS Adoption by 2014 - Is it Possible?

By Carl Pashko

Milestones

The primary objective of adopting IFRS is the belief that a common accounting language around the world is necessary to improve comparability and transparency of financial reporting for investors. Giving investors the ability to compare companies' disclosures regardless of what country they came from, would give investors greater confidence in the transparency of financial reporting. The SEC set forth a number of prerequisites for their decision in 2011 to maintain the mandatory transition date in 2014. These include but are not limited to:

a.) Improving specific accounting standards
b.) Improving the structure and funding of the IASB
c.) Facilitating the use of interactive date under IFRS
d.) Updating the education and licensing of U.S. accountants
e.) Evaluating the early adoption experiences of a limited group of companies
f.) Timing of future rule making
g.) Sequencing of companies required to use IFRS

The accomplishment of these self-imposed milestones will be the deciding factor in whether or not it will be possible to adopt IFRS by 2014.

Joint Projects

As of November 5th, 2009 the two sides have made tremendous progress in their milestone targets. The first major joint project completed by the IASB and the FASB was the Business Combinations project. These standards were intended to eliminate a source of some of the most significant and pervasive differences between the two boards. One of the most important accounting standards going forward is fair measurement. Fortunately, in May 2009 the IASB published an Exposure Draft on fair value measurement that is greatly consistent with the FASB requirements. The two boards have said that their primary objective is to establish the same meaning of fair value in U.S. GAAP and IFRS. By the third quarter of 2010, they will improve all requirements and publish its final standard for fair value measurement.

Revenue recognition is a project that is deeply being tested and evaluated by members of both boards. Both boards agree that developing a single revenue recognition model built on the principle that an entity should recognize revenue when it satisfies its obligation in a contract by transferring goods or services to a customer. This falls in line with many existing requirements, however, they feel that clarifying the differences will improve comparability and understandability. At the October meeting, the boards re-confirmed their plans to regulate a series of workshops to test the concepts proposed. The current goal is to publish their final standards on revenue recognition by the second quarter of 2011.

In 2008 the two boards published a discussion paper about the principles for presenting financial statements. They want to present it in a manner that portrays an entity's cohesive financial picture, disaggregates information so that it is useful in predicting future cash flows, and help users value an entity's liquidity and financial flexibility. They have proposed an idea to remove the option in U.S. GAAP and IFRS that allows entities to present comprehensive income either in a separate statement or directly in equity. They believe eliminating that option will make it easier to compare income statements, and allow more transparent reconciliation. They also discussed the definition of discontinued operations. The current timetable for a published standard of financial statements is set for 2011.

Most of the proposed dates for published standards of the joint projects are set for the second half of 2010 and the first half of 2011. This would indicate that the SEC would have a pinnacle of six months to gather and analyze all of the board's final standards before making a decision of whether or not to adopt IFRS by 2014. Therefore the question is whether six months is ample time to analyze the findings from the joint projects and decide if it is possible to adopt IFRS by 2014. Obviously this is all assuming the two boards are able to meet their current deadlines and agree to a solution for each joint project.
Education

If the United States decides to adopt International Financial Reporting Standards by 2014, who will prepare the current and future accounting college students in time? This is a huge dilemma facing universities around the country right now who are not prepared. In order for public companies to adopt IFRS by 2014, they will need to begin using international standards beginning in 2011. According to an IFRS survey by KPMG, thirty percent of professors believe graduating seniors likely won't have a substantial amount of IFRS education until the 2011 graduating class. Furthermore, forty two percent of professors felt that textbooks with IFRS information will not be ready until the 2010-2011 academic year.

Another problem facing universities, according to Sue Haka, president-elect of the American Accounting Association and a Michigan State accounting professor, is the dwindling number of faculty members. The amount of accounting majors has increased between ten and fifteen percent over the last ten years, while the amount of faculty has decreased by thirteen percent. Haka says what's even worse, is the fact that the average age of accounting professors is fifty six. It would be easier for this older group of professors to retire, than to learn how to teach two different accounting systems. She also believes the universities won't change their curriculum until the SEC sets a firm date. Therefore publishers won't see a demand and won't change textbooks. Another complication is the fact that the universities curriculum is driven from the CPA exam, and until the exam includes IFRS, neither will curriculum.
Is 2014 a Reality?

The SEC will decide in 2011 whether to adopt by 2014 or not. The reality of the matter is that deciding in 2011 is too late. In order for companies and educators to be prepared to successfully transition to IFRS, the Securities and Exchange Commission must decide now if they are going to adopt IFRS and set a deadline immediately. To make a decision and expect public companies to use the system immediately, which is what they will have to do, is not only absurd but nearly impossible. Many companies, educators, and accountant are not moving quickly right now because there is not a set deadline. It is understandable for the SEC wanting to take their time and make the right decision, but if that's the case they need to eliminate their proposed road map and continue to converge into IFRS and do within a reasonable time line. Continuing to converge would give everybody involved enough time to make the necessary adjustments. Educators could prepare curriculum and textbooks, companies will have enough time to train their staff, and the FASB and IASB would have the ability to allocate more time and resources into their joint projects. Cost-benefit is a critical analysis is the accounting field and if applied here the benefits clearly do not outweigh the cost. If the SEC decides it is beneficial enough to adopt IFRS by 2014, the only way of accomplishing that is to set a deadline immediately.

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Differences Between IFRS Vs GAAP

By Morgan Hoffman

Financial reporting in the US is on the verge of a monumental shift from the rules driven Generally Accepted Accounting Principles (GAAP) towards the more principle based International Financial Reporting System. (IFRS) As one would expect from a shift between systems that are fundamentally different, this will mean a lot of changes to how companies report their business activities. These changes include the reporting of inventory, leases, income taxes, and consolidation of subsidiary companies.

One of the big differences between GAAP and the IFRS is how companies keep track of their inventory. Under GAAP, companies are allowed to use the last in first out (LIFO) method to keep track of inventory. A large reason why companies use LIFO is a way to keep company's tax lower. This occurs when the cost of goods sold increases, therefore making a company's net income lower than it actually is. As a result of the apparent lower income, they have to pay fewer taxes. Companies can also alter their financial statement by upping their inventory costs right be for the period ends, making the latest, most expensive batch of inventory sold. Under the IFRS, companies will have to use the first in first out (LIFO) method of inventory. The effect of using FIFO will be the opposite of LIFO in that companies will pay more taxes than assuming their cost of their goods sold is steadily rising, because their net income will appear to be larger. Another major difference between GAAP and IFRS if inventory is written down under GAAP, once inventory has been written down, any reversal is prohibited. The IFRS allows write-downs which have been recognized in previous years to be reversed through the income statement in the period in which the reversal occurs.

Leases under GAAP are much stricter in the way they are reported than they are under the IFRS. Under GAAP, there is specific guidance in making the determination as to whether a lease is considered an operating or capital lease. The four specific criteria include: if there the ownership transfers to the lessee, if there is a bargain purchase option, lease term in relation to the economic useful life (75%) and the present value of minimum lease payments in relation to fair value of the leased asset. (90%) The IFRS focuses on the overall substance of the transaction and substantiality all of the risks or rewards of ownership are transferred to the lessee. IFRS measures all of the criteria GAAP uses, yet it does not place a specific threshold on the amount. This is a classic example of how GAAP follows a strict set of rules while IFRS is more principle based.

There are several differences between IFRS and GAAP relating to accounting for and reporting of income taxes. The tax rate used for measuring deferred taxes under GAAP is the enacted tax rate in place when the timing difference is expected to reverse, whereas under IFRS, the substantially enacted tax rate is used. Under GAAP, the classification of the deferred tax asset or liability is either short-term or long-term depending on the underlying relationship of the timing difference. Under IFRS, deferred tax assets and liabilities are always recorded as long-term. Under GAAP a reconciliation of the expected tax expense to actual is not required in detail and only a disclosure of the nature of the reconciling items is required, where as the IFRS requires the complete reconciliation, including the nature and amounts.

The IFRS rules for reporting subsidiary company are different under GAAP. Under the IFRS, subsidiaries must adopt all the accounting policies of the parent company in consolidation. With GAAP, it must be determined whether or not a specific entity is considered a related party required to consolidate. The consolidation decisions are based on determining who has the right to incur the income and losses of a related entity. The IFRS focuses on the notion of "control," where GAAP is based on Control is defined as the ability to rule over the operating assets of an entity in order to obtain the benefits.

GAAP and the IFRS are fundamentally very different. GAAP is ruled based as demonstrated in how it states inventory, leases, income taxes, and consolidation of subsidiary companies are reported; while the IFRS is exceedingly focused on principles. Because of these philosophical differences, there will be numerous changes companies will need to make in order to comply with the new regulations. Despite the work needed to make the changes, the benefits appear to out weigh the costs.

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Assessing the Adoption of the IFRS in the United States

By Matt R Schlager

In a world where globalized business has become commonplace, the eventually harmonization of global accounting standards seems necessary. This evolution of accounting standards in the United States seems inevitable as the Securities and Exchange Commission moves toward adoption of the International Financial Reporting Standards. While, the shift may be necessary to address the needs of an increasing global market, there are concerns that the inherent problems with the adoption of the IFRS may outweigh the need for globalized accounting standards. The United States must give consideration to the unique characteristics that its market holds, and assess the implications of these characteristics when adapting to meet international standards.

In order to address the issues of IFRS adoption it is important to consider the unique factors of the United States accounting environment and their conflict with the IFRS. In a 2012 study, Shima and Yang, examined the factors of deterrence to the adoption of the IFRS including the United States. Their analysis found statistically significant results to back up hypotheses on characteristics "influencing accounting system development. For instance, they look at the effects of equity and debt financing markets. In a nation like the United States, that maintains extensive equity markets, internal accounting standards will cater to regulating these markets. The IFRS must consider a variety of different market types and will likely provide limited guidance on such matters. While Shima and Yang also find national characteristics, such as education levels, which favor adoption, the differentiation of market characteristics play an important role in IFRS adoption.

This difference in standards brings to light another issue in adoption of the IFRS. The IFRS provides what is deemed principles-based guidance in contrast to the GAAP's rules-based guidance. Though the IFRS does have some rules-based influence, it has the possibility of being vague in some areas of financial reporting. In these areas of financial reporting that lack authoritative guidance under the IFRS, accountants must revert to previous standards, which essentially eliminates the supposed benefits of adopting IFRS in the first place (Jones, 2010).

The principles-based accounting system also presents other issues to U.S. firms. Without firm codification of rules for the development of financial statements it is likely that such releases will be subject to the litigation (Rahr, Karim and Rutledge, 2010). In this system, compliance will become more difficult as accounts must adjust for the convergence of two sets of standards. In this transition, legitimacy of financial reporting will be held at the discretion of regulators. In order for firms to avoid the costs of litigation, they must instead opt for expedited education in new regulations. This results in a trade-off of costs, which must be borne by firms in order to comply with international standards regardless of their participation in international markets.

The issue of transitioning to the IFRS has also caused derision domestically in the United States. With a diversity of firms needing to meet compliance, smaller entities have raised concerns that it stifles their ability to compete. Larger firms with resources to overhaul reporting standards may do so regardless of the eventually outcome decided by the SEC. Some large entities have already begun to transition to the IFRS, while smaller firms must wait and absorb the costs of convergence when it is necessary and feasible. This problem is further exacerbated as global economic turmoil, causes reforms within the IFRS itself. Compliance in a changing regulatory environment will prove difficult for all firms and further increase the costs of convergence (Rahr, Karim and Rutledge, 2010).

Despite the problems presented by the adoption of the IFRS, it seems that U.S. firms must begin to adapt for this transition. In an effort to better adapt to the coming change in regulation, some firms have already begun the transition process. Though there are challenges in the transition, the eventually adoption will be done on the basis of benefiting the United States position in the world economy. Though it may translate to short term costs the SEC believes that adoption will benefit U.S. investors by allowing for internationally comparable financial data and a "greater opportunity to compete in global capital markets" (Rahr, Karim and Rutledge, 2010). By working with regulators, firms can ease the transition into the globally harmonized accounting cultural and reap its benefits at the lowest possible cost.

References
Jones, R. C. (2010). IFRS Adoption: Some General Issues to Remember. CPA Journal, 80(7), 36-38.
Rahr, K., Karim, K. E., & Rutledge, R. W. (2010). Transitioning to IFRS. CPA Journal, 80(3), 6-8.
Shima, K. M., & Yang, D. C. (2012). Factors Affecting the Adoption of IFRS. International Journal Of Business, 17(3), 276-298.

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