Determine the impact that specific differences between IFRS and U.S. GAAP have on financial statements, and prepare adjustments to convert IFRS balances to U.S. GAAP.
Determine the impact that specific differences between IFRS and U.S. GAAP have on financial statements, and prepare adjustments to convert IFRS balances to U.S. GAAP.
The distinctive points are listed below:
- S. GAAP is only used in USA (United States of America), whereas IFRS is accepted by many European countries as well as South American and Asian companies.
- S. GAAP is more biased on rules and uses rules as mode of operation whereas IFRS is biased on principles.
- IFRS do not allow the use of LIFO method for inventory evaluation whereas U.S. GAAP allows it.
- S. GAAP only allows revaluation of marketable securities whereas IFRS has allowed it for specific assets like property and inventory.
GAAP values fixed assets on historic costs and follows appropriate depreciation of these but IFRS values them at initial cost and allows component depreciation differently.
The major impact of these differences is that it hampers the valuation process of firms. Every investor before investing in any firm or company needs to evaluate the worth of company but if different company adopts different set of standards it makes it difficult for investor to compare between two organizations.
For example, based on the above difference if a company in U.S. values its inventory on the basis of LIFO and a company in London values it as per FIFO method the comparison of net income will be difficult as when a firm opts for LIFO method of inventory valuation it reports in low artificial net income and sometimes do not reflect the inventory item’s actual flow through the company.
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