3-2 Final Project Milestone One- GAAP vs. IFRS

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Accounting

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Apr 3, 2024

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1 Milestone 1 3-2 Final Project Milestone One: GAAP vs. IFRS Sherry Gerges Southern New Hampshire University ACC 610: Financial Reporting 1 Professor: Dr. Stephen Weiss December 30 th , 2023
2 Milestone 1 To transition from GAAP to IFRS is not an easy undertaking for any company. This transition would require a lot of research and tools to be able to ensure that it is the right move for the specific company. GAAP is considered rule based while IFRS is considered principle based. The transition wouldn’t be an easy one and would require a lot of training and teaching for those currently in the company as well as those planning to join the company the future. This type of transition can cause a lot of accounting mistakes and confusion because the U.S. is the only country at this time using GAAP while over 140 other countries are using IFRS. “This creates inconsistencies for both investors and lenders. Investors may come across issues when they consider funding capital-seeking companies that follow the accounting standards and financial reporting of the country in which they do business” (Pologeorgis, 2023). Not only would these changes take an extensive amount of time, but they would also cost a lot for the company to take on this transition. The transition from GAAP to IFRS would be beneficial in the long run for all companies because it would allow for a standard system between the US and all the international companies. The company that will be discussed in this report is Costco and this report will explain the steps that Costco needs to take to transition from GAAP to IFRS as well as how their financial statements would differ and how it would remain the same. This report will also give examples on how the statements would look for Costco once this transition is put into place. Balance Sheet IFRS and GAAP companies have some differences when it comes to their balance sheets. Some of the differences include what is listed first and the order that is followed on for each of the companies. “For example, current assets are displayed first in GAAP, while IFRS reports begin with non-current assets” (Malhotra, 2023). Some other differences are that GAAP focuses
3 Milestone 1 a lot on liquidity of the assets while IFRS lists them from least to most liquid (Malhotra, 2023). Based on this information, Costco would need to start by updating their current balance sheets to match those of an IFRS company by starting with the non-current assets and working their way down. They would also change how they would prioritize their liquid assets from least to most liquid. Cash Flow Statement For the cash flow statement, there are some differences when it comes to preparing it. Those differences depend on whether the company is a GAAP company or an IFRS company. “According to GAAP, interest paid and received should be part of operating activities. Conversely, IFRS offers organizations the flexibility to classify interest however they feel is appropriate” (Malhotra, 2023). To be able to make this a smooth transition, Costco would need to determine what categories would be included in the IFRS cash flow statement. After determining that information, Costco would be able to prepare a cash flow statement using the IFRS principles. Transition for Costco When completing this transition from IFRS to GAAP, Costco will need to ensure that it is properly prepared for the transition prior to announcing the change. They will need to ensure that their staff is well informed and trained on what the transition entails and the accounting department understands the changes that need to be made to the different statements. Costco would also have to ensure that there is a section that is checking the work of the transition to ensure that no mistakes are made since that is highly likely. It is close to impossible to make sure the transition is perfect, but Costco can definitely try to make sure that there is very minimal mistakes. In conclusion, although the transition will be difficult it will be very beneficial because
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4 Milestone 1 it will allow the company to follow the same standard system that over 140 countries are currently using today.
5 Milestone 1 References Malhotra, A. (2023, May 15).  GAAP vs IFRS: Key Definition, Differences & Similarities . Replicon. https://www.replicon.com/blog/gaap-vs-ifrs/ Pologeorgis, N. A. (2023, November 29).  Gauging the impact of combining GAAP and IFRS . Investopedia. https://www.investopedia.com/articles/economics/12/impact-gaap-ifrs- convergence.asp