Conceptual framework

Microchip International Corporation

Background

You were just hired in the Accounting Policy Group (APG) of Microchip International Corporation (MIC), a US-based public company registered with the SEC. You were told during the interview process that you would get involved in the IFRS project MIC is evaluating. Over the last four years, MIC has expanded its manufacturing operations to countries in Europe and Southeast Asia and, accordingly, is required to file specific country statutory financial statements using accounting policies and conventions specific to each country. This reporting is starting to take more and more time and, as the global expansion is expected to continue, the country-specific financial statement filing requirements are expected to become even more complex and time consuming.

This morning, the Vice President of the APG (VPAPG), Connie Wheat, asked you to join her in a meeting with the Controller, Valerie Johnson, to discuss preliminary assessments for financial reporting using IFRS. During the meeting, the controller informed you and the VPAPG that the President and the CFO each expressed their views, gained from conversations with colleagues from other companies, that IFRS was easier to apply because it is principles based, is not as rigid as US GAAP and that US GAAP is changing to IFRS. They further represented that it was their understanding that US GAAP has already adopted some IASB guiding principles this past September.

The controller has asked you to explain to the president and the CFO the conceptual differences between US GAAP and IFRS, specifically whether the FASB has adopted any guiding principles lately and, if so, how do they affect US GAAP. After that, if they understand the conceptual differences and changing to IFRS is an available alternative for foreign country financial reporting, they may approve a project to further evaluate IFRS.

Required

Please discuss in broad terms the significant conceptual differences between the FASBs Concept Statements and the IFRS Framework.

Do you agree or disagree with the presidents preliminary view that IFRS is easier to apply because it is principles based and not as rigid as US GAAP? Articulate your view as to why or why not.