U.S. GAAP vs. IFRS
A current hot topic in accounting is the potential change from U.S. GAAP to IFRS. There is much discussion on the topic and one that is worthy of investigation. Please conduct a thorough research inquiry on IFRS and the proposed changes this will present. Please take a position on whether these changes will be positive, or negative, and provide support as to why you made your choice.
Just response each posted down below #1 to 3
Posted # 1
As we have learned that the Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS) are the two main accounting structures used today. The GAAP is mostly used in the US and the IFRS is used widely in many countries in the world. To me, “the potential changes from US GAAP to IFRS” makes more sense for a few reasons. When having the same accounting standards, it is easier for companies to compare the financial reports with others in the same industry. Besides, when having the same “accounting language”, it is easier for investors and creditors to understand and compare before making their investing decisions. More than that, the market globalization helps the businesses to stay current and consistency with others. On the contrary, it would be difficult and impossible to compare the financial statements among countries. For example, US GAAP allows using the LIFO inventory while it is prohibited under IFRS, it is impossible to compare the statements between the US and international companies.
Investopedia. (n.d.). What are ‘Generally Accepted Accounting Principles – GAAP’. Retrieved from https://www.investopedia.com/terms/g/gaap.asp
Posted # 2
The International Financial Reporting Standards (IFRS) is the set of accounting standards used in more than 110 countries and has key differences than the Generally Accepted Accounting Principles (GAAP) of the United States. IFRS is more principal based accounting standards while GAAP is more rule based. It is argued that by being more principal based IFRS has a better representation of the economics of a transaction than GAAP (Nguyen, 2018).
A few key differences is under IFRS, the LIFO method for accounting inventory cost is prohibited, while under GAAP, you can utilize either LIFO or FIFO to estimate inventories. Under IFRS, a write-down of inventory can be reversed in future periods if specific criteria are met. While under GAAP, once inventory has been written down, reversal is not allowed (Nguyen, 2018).
I think adopting IFRS as the standard in the United States would have a positive outcome. IFRS is the universal law for accounting outside of the U.S.. By adopting IFRS as our standard in the U.S. it would finally put all countries on the same accounting standards. Additionally, by having IFRS as a standard in the U.S. it would make for doing business with foreign countries drastically easier. Not to mention that GAAP has pulled a lot of it’s rules from IFRS.
Nguyen, J. (2018, March 23). What are some of the key differences between IFRS and U.S. GAAP? Retrieved September 28, 2018, from https://www.investopedia.com/ask/answers/09/ifrs-gaap.asp
GAAP being used only in the United States has a different set of rules compared to IFRS. IFRS is used in more than 110 countries, and this would make business transactions easier for the countries involved as far as accounting goes. There would be a lot of changes if GAAP changed to IFRS, some of them being how inventory is tracked, the presentation of liabilities, how the income statement is presented, and more.
While it’s clear there would be some negative effects if this change occurs, I feel it would be more positive in the long run. More and more companies are going global, and this would help them with reporting their financial statements to standard. It would be less confusing, and less potential of fraud to occur, because of the difference between GAAP and IFRS. Investors would also have an easier way of understanding the companies financial reports, given they invest in multiple companies both domestically and internationally. This would take a lot of work though, and lots of changes to companies that currently follow GAAP to adapt to. That is where some of the negative comes in, it would be hard to come to an agreement between what standard is actually better to follow in the United States.