Question

ACCT 330 - Take Home Portion of Exam 2: Describe the background and history of International Accounting Financial Reporting Standards (IFRS) and explain 5 differences that still exist between U.S. GAAP and IFRS. Please use two current sources (2017 to present) in addition to the ACCT 330 textbook to complete this assignment. Please site your references. Due on or before November 9th.

Answer 1

Background and History of International Financial Reporting Standards (IFRSs)

Meaning of 'International Financial Reporting Standards'

In everyday usage, the term 'International Financial Reporting Standards' (IFRSs) has both a narrow and a broad meaning.

More broadly, IFRSs refers to the entire body of IASB pronouncements, including standards and interpretations approved by the IASB and IASs and SIC interpretations approved by the predecessor International Accounting Standards Committee.

IFRSs as defined in Standards

Paragraph 7 of IAS 1 Presentation of Financial Statements defines IFRSs as comprising:

• International Financial Reporting Standards
• International Accounting Standards
• IFRIC Interpretations
• SIC Interpretations

(The definition of IFRSs was amended after the name changes introduced by the revised IFRS Foundation Constitution in 2010.)

The IFRS is designed as a common global language for business affairs so that company accounts are understandable and comparable across international boundaries. They are a consequence of growing international shareholding and trade. The IFRS is particularly important for companies that have dealings in several countries. They are progressively replacing the many different national accounting standards.

The IFRS began as an attempt to harmonize accounting across the European Union, but the value of harmonization quickly made the concept attractive around the world. They are occasionally called by the original name of International Accounting Standards (IAS). The IAS were issued between 1973 and 2001 by the Board of the International Accounting Standards Committee (IASC). On April 1, 2001, the new IASB took over the responsibility for setting International Accounting Standards from the IASC. During its first meeting the new Board adopted existing IAS and Standing Interpretations Committee standards (SICs). The IASB has continued to develop standards calling the new standards the IFRS.

GAAP vs. IFRS

Principles Based vs. Rules Based

A major difference between GAAP and IFRS is that GAAP is rule-based, whereas IFRS is principle-based.

Another difference between IFRS and GAAP is the methodology used to assess an accounting treatment. Under GAAP, the research is more focused on the literature whereas under IFRS, the review of the facts pattern is more thorough.

Some other differences(Example Based):

• Consolidation — IFRS favors a control model whereas GAAP prefers a risks-and-rewards model. Some entities consolidated in accordance with FIN 46(R) may have to be shown separately under IFRS.
• Statement of Income — Under IFRS, extraordinary items are not segregated in the income statement. With GAAP, they are shown below the net income.
• Inventory — Under IFRS, LIFO cannot be used, but GAAP, companies have the choice between LIFO and FIFO.
• Earning-per-Share — Under IFRS, the earning-per-share calculation does not average the individual interim period calculations, whereas under GAAP the computation averages the individual interim period incremental shares.
• Development costs — These costs can be capitalized under IFRS if certain criteria are met, while it is considered as “expenses” under U.S. GAAP.