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difficult for investors to understand how multinational companies shall operate among all the
Many companies have achieved coherence at the international level by following the IFRS
accounting standards that could serve as a framework for financial reporting in cross-border
offerings, and indicate the security and exchange commission’s intent to remain active in the
guidelines for financial accounting, mainly used in the U.S.A.. It includes the standards,
conventions, and rules accountants follow in recording and summarizing transactions, and in
• Analysis:
• Structures:
describes some of the principles underlying IFRS. The framework states that the
position, performance and changes in the financial position of an entity that is useful
• Scope
• Objective
• Underlying assumptions
rules and laws. This principle is also known as the Principle of Consistency.
• Principle of sincerity: According to this principle, the accounting unit should
company.
financial information and not seek to compensate a debt with an asset, revenue
• Principle of prudence: This principle aims at showing the reality "as is”: one
should not try to make things look prettier than they are. Typically, revenue
should be recorded only when it is certain and a provision should be entered for
that the business will not be interrupted. This principle mitigates the principle of
subscription (or lease, etc.), the given revenue should be split to the entire time-
span and not counted for entirely on the date of the transaction.
• Similarities and Differences:
• Accounting framework:
• IFRS - Generally uses historical cost, but intangible assets, property, plant and
Derivatives, certain other financial instruments and biological assets are revalued to
fair value.
• IFRS - Full retrospective application of all IFRSs effective at the reporting date for an
entity’s first IFRS financial statements, with some optional exemptions and limited
reported under previous GAAP, of equity at the end of that period and of equity at
adoption of US GAAP.
• Financial statements:
A set of financial statements under IFRS and US GAAP comprises the following
components.
Component IFRS US GAAP
Balance sheet Required Required
Statement of
recognized income
changes in share
(stock) holder's
• Consolidation model
• IFRS - Based on control, which is the power to govern the financial and operating
through subsidiaries, more than one half of an entity’s voting power. Control also
exists when the parent owns half or less of the voting power but has legal or
variable interest model and a voting interest model. Under the voting interest
model, control can be direct or indirect and may exist with less than 50%
ownership. ‘Effective control’, which is a similar notion to de facto control under
• Business combinations:
• IFRS - All business combinations are acquisitions, thus the purchase method is the
• IFRS - Assets, liabilities and contingent liabilities of acquired entity are fair valued.
Goodwill is recognized as the residual between the consideration paid and the
percentage of the fair value of the business acquired. In-process research and
Liabilities for future losses or other costs expected to be incurred as a result of the
• GAAP - There are specific differences to IFRS. Contingent liabilities of the acquiree
Specific rules exist for acquired in-process research and development (generally expensed).
Some restructuring liabilities relating solely to the acquired entity may be recognized if
• IFRS - Based on several criteria, which require the recognition of revenue when risks
and rewards and control have been transferred and the revenue can be measured
reliably.
• Expense recognition:
• IFRS - Recognized on an accruals basis using the effective interest method. Interest
• GAAP - Similar to IFRS. Similar to IFRS with some differences in the detailed
application.
• Assets:
• IFRS - Capitalized if recognition criteria are met; amortised over useful life.
Intangibles assigned an indefinite useful life are not amortized but reviewed at least
• IFRS - Historical cost or revalued amounts are used. Regular valuations of entire
• Liabilities:
• IFRS - Liabilities relating to present obligations from past events recorded if outflow
of resources is probable (defined as more likely than not) and can be reliably
estimated
• GAAP - Similar to IFRS. However, probable is a higher threshold than ‘more likely
than not’.
• Conclusion:
• Benefits of IFRS:
• Cash includes cash equivalents with maturities of three months or less from the
• IFRS’s comparative are restated and, if the error occurred before the earliest
prior period presented, the opening balances of assets, liabilities and equity for
• Assets, liabilities and contingent liabilities of acquired entity are fair valued.
• IFRS based on “Effective control”.
• IFRS Based on several criteria, which require the recognition of revenue when
risks and rewards and control have been transferred and the revenue can be
measured reliably.
• Benefits of GAAP:
face of the balance sheet are generally presented in decreasing order of liquidity.
• Limited exemptions for certain investment entities and defined benefit plans.
• Limitations of IFRS:
• IFRS had no exemptions for certain investment entities and defined benefit
plans.
• Limitations of GAAP:
• US GAAP does not have a SoRIE, and SEC rules permit the statement to be
• Cash includes cash equivalents with maturities of three months or less from the
• Preference:
investors are naturally attracted to a deep and liquid capital market, a natural offshoot of
related to IFRS will strongly contribute to economic growth and full employment at the
macro-economic level.
At the micro-economic level, the foremost beneficiaries will initially be publicly listed
companies. In particular, they will benefit from reduced cost of capital, the ability to compete
on an equal footing with global peers, and the opportunity to redefine their competitive image
to the investor community. Multinational firms will be able to finance foreign operations
including financial institutions that are likely to reward transparency with a lower cost of
credit. Since a natural ambition of any business is to grow, early IFRS adoption will facilitate
Nearly 100 countries currently require or permit the use of, or have a policy of convergence
with, IFRSs. As the work of the IASC Foundation has gained growing acceptance and its
standards have been adopted by increasing numbers of national jurisdictions, there has been
www.google.com
www.wikipedia.com
http://en.wikipedia.org/wiki/International_Financial_Reporting_Standards
http://en.wikipedia.org/wiki/GAAP
http://www.ifrs-today.com/info/msfo.php
http://www.mees.com/postedarticles/oped/v49n34-5OD01.htm
http://www.pwc.com/extweb/pwcpublications.nsf/docid/74d6c
09e0a4ee610802569a1003354c8
http://www.iasb.org/About+Us/About+IASB/IFRS+Around+the+World.htm