Ifrs vs. Gaap: Concerns About Lifo

In: Business and Management

Submitted By gReaL
Words 661
Pages 3
IFRS vs GAAP: Concerns about LIFO
General accepted accounting principles (GAAP) allows the use of LIFO (Last-in First-out) under ASC 330-10-30-9 to determine inventory costs. However, IFRS (International Financial Reporting Standards) does not allow the use. Many companies choose to use the LIFO method because it allows the higher value inventory to be included into the cost of sales. This results in a smaller profit margin that further results in less tax. IFRS doesn’t allow the use of LIFO for the same reason. The financial statements will be less true to the current market value. In the efforts to converge with international standards, LIFO has become a major issue. First it must

Although GAAP currently allows the use of LIFO, entities must still abide to the Sec. 472(c) – LIFO conformity rule – in which the same inventory cost method must be used on financial statements and on income tax returns. This can be a problem for multinational companies since LIFO is not allowed under IFRS. Multinational businesses would need to provide reporting information that follows both GAAP and IFRS. This could be a very costly process.
What would happen if LIFO were no longer allowed? This is an even more important issue among many companies since it is estimated that about 36% of U.S. companies use LIFO (“Georgia Tech Financial Analysis Lab Releases LIFO Study,”IFRS.com). In the a study performed by Georgia Tech, they found that out of 30 sample companies, they estimated “that the cumulative taxes due on the switch to LIFO, to be paid over a four-year period, would total over $15 billion.” In an article, “Must LIFO Go to Make Way for IFRS?” by Michael J.R. Hoffman, Hoffman pointed out some shocking figures. He stated that United Technologies would have to pay out as much as $60 million in tax if they were to switch from LIFO, based on their 2007 reporting. Looking at…...

Similar Documents

Gaap vs Ifrs

...Work Plan for the Consideration of Incorporating International Financial Reporting Standards into the Financial Reporting System for U.S. Issuers A Comparison of U.S. GAAP and IFRS A Securities and Exchange Commission Staff Paper November 16, 2011 OFFICE OF THE CHIEF ACCOUNTANT UNITED STATES SECURITIES AND EXCHANGE COMMISSION This is a paper by the Staff of the U.S. Securities and Exchange Commission. The Commission has expressed no view regarding the analysis, findings, or conclusions contained herein. TABLE OF CONTENTS I.  II.  Introduction..........................................................................................................................1   Methodology ........................................................................................................................2   A.  Scope of the Analysis...............................................................................................2   B.  MoU and Other Joint Projects..................................................................................3   C.  SEC Rules and Regulations .....................................................................................8   D.  General Observations and Clarifications .................................................................8   Comparison of Requirements ............................................................................................11   A.  Accounting Changes and Error......

Words: 24926 - Pages: 100

Ifrs vs Gaap - Consolidation

... | |US GAAP vs IFRS | | | | | For decades the US financial market has stuck to accounting rules known as the Generally Accepted Accounting Principles, commonly abbreviated as U.S. GAAP, or simply GAAP. Just less than a year ago, there was the groundbreaking elimination of GAAP requirement for International Financial Reporting Standards (IFRS) reporting foreign issuers, due to a strong global support for IFRS. Then on August 27th 2008, the Securities Exchange Commission voted to publish for public comment a proposed Roadmap that could lead to the use of International Financial Reporting Standards (IFRS) by U.S. issuers beginning in 2014. Currently, U.S. issuers use U.S. Generally Accepted Accounting Principles (U.S. GAAP). The Commission would make a decision in 2011 on whether adoption of IFRS is in the public interest and would benefit investors. The proposed multi-year plan sets out several milestones that, if achieved, could lead to the use of IFRS by U.S. issuers in their filings with the Commission (Navigating). The transition from U.S. GAAP to IFRS reporting will have a huge impact for investors and businesses......

Words: 1382 - Pages: 6

Gaap vs Ifrs

...Analysis of IFRS and U.S. GAAP GAAP or acronym for Generally Accepted Accounting Principles refers to the standard framework of guidelines for financial accounting used in any given jurisdiction. It is a common set of accounting principles, standards, and procedures that companies use to compile their financial statements (Investopedia). For many years, countries have developed their own accounting standards. The U.S. has always followed the U.S. GAAP while most European countries followed the IFRS, or acronym for International Financial Reporting Standard. In a sense, the U.S. had their own financial “language”, and in order to communicate with others, they needed to translate to a language they could understand. As globalization and international trade increased, such differences in the financial language caused many difficulties and problems, creating a demand for a new language that is universally accepted and understood. The convergence of IFRS and GAAP is what came of this demand. Understanding U.S. GAAP and more importantly its transition to IFRS is extremely crucial for anyone pursuing a career in Accounting or related fields. At the time of the stock market crash in 1929, there was no structure setting accounting standards. As the nation plunged into the Great Depression, there were calls for increased government regulation of financial institutions. The result was the establishment of the Securities and Exchange Commission (SEC); a federal agency that......

Words: 2268 - Pages: 10

Gaap vs. Ifrs

...GAAP vs. IFRS Jose Vargas Phoenix Accounting 211 Dr. Freeman GAAP vs. IFRS Different accounting standards for business transactions are a problem in comparing financial results of different entities from different countries. As a solution, by our country accepting one standard, an international standard it would allow them to be assessed in a more comparable manner across the board. The United State of America with just a handful of other countries have in the past have used accounting guidelines based off the Generally Accepted Accounting Principles (GAAP) formulated by the Financial Accounting Standards Board. In order to bring about a accounting standard that can address the different accounting standards, the International Accounting Standards Board (IABS) has developed accounting guidelines called the International Financial Reporting Standards (IFRS). By every Country adopting these guidelines, it is expected that financial statements will be more comparable to different entities in other countries. When transitioning from GAAP to IFRS, there have been several differences identified in accounting and reporting financial transactions and records. The following are just a hand full which addresses some differences between the two reporting standards. * Extraordinary items; are the events that don’t occur on a regular basis, for IFRS they are simply prohibited and for GAAP, as long as they are unusual and indifferent they are allowed (Logue). *......

Words: 492 - Pages: 2

Gaap vs Ifrs

...GAAP vs IFRS GAAP vs IFRS: Opposing the Proposed Shift Kelsey Perez Author Affiliation There has been a growing demand over the past twenty years to unite the business world under one conceptual framework for reporting financial statements. Currently, there are two types of frameworks used throughout the accounting world. They are the General Accepted Accounting Principles ( GAAP) and International Financial Reporting Standards (IFRS), the SEC is currently considering a shift from United States GAAP to IFRS. My opposition to the United States shift from Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS) is based on the following three reasons; the cost of implementation, training requirements, and increased profit manipulation risk. Cost of IFRS Cost is another disadvantage of IFRS. Small and large businesses would be affected by the transition. “It is estimated that it would cost each business $32 million dollars to convert from GAAP to IFRS” (Paul & Burks, n.d. p. 4). The financial impact would be greater to small businesses compared to the large businesses. Large businesses have the available resources to train employees and implement the change. Small companies would have to bring in outside accountants or spend an exceptional amount of money to train employees and implement the change. Even if small companies used outside accountants, these accountants would be forced to retrain everything that......

Words: 648 - Pages: 3

Ifrs vs Gaap

...For the past few weeks our class have been discussing differences between the IFRS and GAAP with our team members. ¬¬¬¬¬¬¬¬¬¬¬¬IFRS is the International Financial Reporting Standards, which is a set of international accounting standards. GAAP is the Generally Accepted Accounting Principles, which is a set of accounting standards in the United States. Both of these accounting standards have similarities and differences in the recording and set up of the financial statements. Format There are many ways the format of a financial statements under IFRS are different from GAAP’s balance sheet. The first difference is the IFRS does not give a specified order for the position on the statements. It is usually based off liquidity. GAAP requires a specific order based on liquidity. Another difference is IFRS requires a separation of the current and noncurrent accounts, GAAP is recommended instead of required. Conceptual Framework The IFRS and GAAP conceptual frameworks are particularly similar in terms of the objective of financial reporting. Conceptual framework establishes the concepts and the details of financial reporting. Important information should be reported frequently, it should follow all rules and standards. Both want to have relevance, reliability, consistency, and comparability. Terms The terms that are commonly used under IFRS are synonymous with common stock and balance sheet. The balance sheet is synonymous with the statement of financial position. Both......

Words: 710 - Pages: 3

Us Gaap vs Ifrs

...Comparison between U.S. GAAP and International Financial Reporting Standards May 2013 © 2013 Grant Thornton LLP All rights reserved U.S. member firm of Grant Thornton International Ltd Comparison between U.S. GAAP and International Financial Reporting Standards 2 Contents 1. Introduction .................................................................................................................................................. 6 International standards and the IASB ............................................................................................................ 6 Financial accounting and reporting in the United States ................................................................................ 6 IFRS and U.S. GAAP comparison ................................................................................................................. 6 Overall financial statement presentation ................................................................................................... 8 General .......................................................................................................................................................... 8 Statement of financial position / balance sheet .............................................................................................. 9 Statement of comprehensive income / income statement ........................................................................... 12 Statement of changes in......

Words: 95644 - Pages: 383

Ifrs vs Gaap

...of time (Camfferman and Zeff, 2006). In 1993, Daimler Benz AG aimed to list on the New York Stock Exchange (NYSE); hence, it needed to reconcile its financial statements to comply with US Generally Accepted Accounting Principles (US GAAP). Under German GAAP, the firm had re- ported a net income of 615 million Deutschmarks (DM) for the 1992 year, which turned into a net loss q We are grateful to Luis Fernández-Revuelta and Mikel Tapia for their helpful comments on earlier drafts of this paper. This project is partially funded by the Spanish Ministry of Education’s research Grant # SEJ2007-67582-C02-01. * Corresponding author. Tel.: +34 91 568 96 00; fax: +34 91 561 09 30. E-mail addresses: salvador.carmona@ie.edu (S. Carmona), marco.trombetta@ie.edu (M. Trombetta). 0278-4254/$ - see front matter Ó 2008 Elsevier Inc. All rights reserved. doi:10.1016/j.jaccpubpol.2008.09.003  456 S. Carmona, M. Trombetta / J. Account. Public Policy 27 (2008) 455–461 of DM1, 839 million under US GAAP (see also Ball (2004)). On November 15, 2007, the US Securities and Exchange Commission (SEC) allowed the operation of foreign private firms using International Financial Reporting Standards1 on the NYSE without first reconciling their financial statements to US GAAP. The financial press enthusiastically greeted this move; on November 19, 2007, the Financial Times wrote: ‘‘The goal of a single worldwide accounting language has long been a dream. Today it is fast becoming a reality—and the......

Words: 866 - Pages: 4

Ifrs vs Gaap

...IFRS vs U.S. GAAP Victoria Harris American Public University Acct 610 There are two sets of accounting standards that are used worldwide. One is the International Financial Reporting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (GAAP). There is a huge desire for there to one set of accounting standards worldwide with the increase of companies performing business in many different countries and global expansion. The International Financial Reporting Standards are issued by the International Accounting Standards Board. These set of accounting standards are international in more than 110 countries and the state how certain transactions and other events should be reported in the preparation of financial statements. This set of standards’ purpose is to make international comparisons easier. This is not an easy task, though, because there is already set rules in every country. U.S. Generally Accepted Accounting Principles are another set of accounting standards that is adopted by the U.S. Securities and Exchange Commission (SEC) and are the rules followed by companies in the United States when compiling financial statements. These set of standards was originally developed by auditors and regulated by the American Institute of Certified Public Accountants (AICPA) historically. The SEC is now considering changing the standards for the United States and going with the International Financial Reporting Standards in order to create a more......

Words: 1532 - Pages: 7

Ifrs vs Gaap

...INTRODUCTION For more than a decade now, there has been a movement around the world to develop a common set of high-quality accounting standards that can be applied globally. Comparable accounting around the world, if high standards are instilled and application was consistent, would make markets more efficient by letting investors compare companies from different countries. In particular, the issue of American adoption of International Financial Reporting Standards (IFRS) is of importance because IFRS standards are used by companies in many countries around the world, including all the countries in the European Union, and some say that the best hope for assuring that the international standards are uniformly followed would be having The Securities and Exchange Commission (SEC), responsible for deciding what accounting rules apply in the United States, involved in enforcing them (Norris, 2012). But, efforts have been under way for years to accomplish this convergence and in a number of areas they have been unable to reach agreements. Because of the expansion of commerce worldwide by many businesses, other issues have arose in this process, such as the need for common global regulation of banks and a need for a global set of ethical standards. In the 1970s, the Foreign Corrupt Practices Act (FPCA) sent a chill throughout the business community by criminalizing the act of making payments outside the US in pursuit of contracts (George, 2008). Making payments to obtain business......

Words: 2102 - Pages: 9

Ifrs vs Gaap

...IFRS vs. GAAP: What are the differences, how does it affect net income reporting and what difficulties may exist in mandating IFRS in the U.S. Introduction I propose to write a paper on some of the major differences which still remain between IFRS and US GAAP. Although the FASB and IASB along with the SEC have been working to converge the two accounting systems, many differences still exist. In particular I plan to show the effects on the reported net income of companies and highlight the difficulties of mandating the use of IFRS in the U.S. Resources abound on this topic, some include: Hughes S, Sander J. A U.S. Manager's Guide to Differences Between IFRS and U.S. GAAP. Management Accounting Quarterly [serial online]. Summer2007 2007;8(4):1-8. Available from: Business Source Complete, Ipswich, MA. Accessed November 7, 2014 SMITH L. IFRS and U.S. GAAP: Some Key Differences Accountants Should Know. Management Accounting Quarterly [serial online]. Fall2012 2012;14(1):19-26. Available from: Business Source Complete, Ipswich, MA. Accessed November 7, 2014. de Mesa Graziano, C., & Heffes, E. M. (2008). IFRS Section: Definition of Fair Value, One of the Differences Between U.S. GAAP and IFRS. Financial Executive, 24(10), 14 Romeo, G., & Bao, D. (2012). TEACHING INVENTORY USING U.S. GAAP AND IFRS: A COMPARATIVE PERSPECTIVE. Journal For Global Business Education, 1225-34. Siegel J., & Shim J. (2010) Accounting Handbook, Barron’s Educational Services,...

Words: 988 - Pages: 4

Ifrs vs Gaap

...Alice Hines IFRS vs. GAAP Monday May 11, 2015 ACCT/290 Principles of Accounting I Tom House When it comes to accounting and dealing with finances, there is a lot to be knowledgeable when it’s in regards to International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP). IFRS is a set of accounting standards developed by an independent, not for profit organization called the International Accounting Standards Board (IABS). GAAP are the standard framework of guidelines for financial accounting used in a given jurisdiction, also known as accounting standards or standard account practice (FASB). The rule to these two terms falls under the double entry of accounting, where debits equal credits. The reason for IFRS and GAAP is the purpose which is reliable and useful to keep track of accounts. Assumptions for accounting determines monetary unit, meaning US currency. Economic entity what reports everything into a particular unit. Followed by the amount of time known as time period which is distinguished by economic life of a business divided into the artificial time period. Then after is the going concern assumptions. Principles are then put into play with revenue recognition, matching, full disclosure and cost principles. The format for IFRS and GAAP may differ from a statement of financial under IFRS or position and a balance sheet under GAAP because of the......

Words: 863 - Pages: 4

Ifrs vs. Gaap

...IFRS VS. GAAP Gregory Abraham ACC/290 August 17, 2015 Sherrick Johnson IFRS VS. GAAP In accounting, there are sets of standards, accounting principles, and procedures that businesses use to assemble their financial statements. IFRS and GAAP are two common sets that companies use to comply their statements. IFRS, International Financial Reporting Standards, are a set of accounting standards established by the IASB, the International Accounting Standards Board, which is becoming the international standard for the preparation of public company financial statements. GAAP, Generally Accepted Accounting Principles, are a mixture of influential standards and simply the commonly accepted ways to record and report accounting information (Offill, 2012). Even though GAAP and IFRS are both commonly used, they are still differently structured. IFRS Format of a Statement Differ From GAAP Balance Sheet IFRS does not obligate a precise order or arrangement of financial records on the statement of financial position. A lot of the time businesses report possessions in opposite order of assets. For example, the sequence of accounts on the statement of financial position could include Current Assets, Long Term Asset, Long Term Liabilities, Shareholder Equity, and Current Liabilities. GAAP on the other hand, specifically desires that all financial records be organized established on their degree of assets. Thus, money is typically conveyed initially, and non-current......

Words: 1069 - Pages: 5

Gaap vs Ifrs

...GAAP vs IFRS Generally Accepted Accounting Principles verses International Financial Reporting Standards Laura Lance Financial Accounting, ACC211 Instructor Suzanne Lozano 12 November 2011 GAAP vs IFRS 1 Generally Accepted Accounting Principles verses International Financial Reporting Standards. The two accounting reporting systems used today are the International Financial Reporting Standards and the U.S. Generally Accepted Accounting Principles (GAAP). These two totally different accounting standards have a lot of differences and similarities. The IFRS leaves the decision making for the accountants, while the GAAP is very detailed in the measures in which it reports accounting. Many companies are operating under a global sort of accounting. Each different Country has different standards in accounting principles. In this document I will go over a few differences and similarities between the IFRS and GAAP accounting principles. Disclosure of Contingencies One of the most significant differences between GAAP and IFRS is the disclosure of potential liabilities. U.S. GAAP would like to increase the standard for disclosure of loss contingencies, such as lawsuits that are pending. The IFRS position on this is......

Words: 541 - Pages: 3

Impact of Lifo - Ifrs vs Gaap

...Impact of LIFO Accounting When discussing IFRS vs. GAAP regarding inventory, LIFO Accounting is one of the most controversial topics. Although LIFO is hardly used globally, it is heavily used in the United States. A shift from LIFO would have a significant effect on US companies specifically because tax law requires any company that uses LIFO for tax purposes to also use it for book accounting according to Internal Revenue Code (IRC) §472(c). Since IFRS disallows LIFO Accounting, US companies will either be in non-compliance with US tax code or accounting standards according to IFRS. By disallowing LIFO Accounting, US companies will not only have larger tax liabilities because of accelerated income recognition but they must also account for a change in inventory methods (Bloom & Cenker, 2009). GAAP provides guidance under Statement 154- Accounting Changes and Errors Corrections which states when a change in inventory method occurs; the company must retrospectively apply the change to prior financial statements presented in effected annual reports. Only if change is unfeasible can the company apply the new principle prospectively. When an inventory method change is made, the company can deduct the change for tax purposes. According to IRC §481(a), the company can deduct the entire change in the year of the change if the change is favorable to the entity. However if they change is unfavorable, the company can apply the change of a period of four years starting with......

Words: 482 - Pages: 2

The Adventurers | Blutsbande | La mante