Textbook:

Horngren's Financial & Managerial Accounting, The Managerial Chapters (5th Edition) 5th Edition

by Tracie L. Miller-Nobles (Author), Brenda L. Mattison (Author), Ella Mae Matsumura (Author)

Accounting Question

Review the section discussing international accounting in Chapters 15, 20, 22, 23, and 26. Are there major similarities and differences between U.S. GAAP and IFRS? Which of the differences do you find most interesting? If there is a convergence between U.S. GAAP and IFRS, would you choose the U.S. GAAP or IFRS method? Why? Also, discuss if you had any change of opinion since the discussion in Module 4.

Additional information My post for the orginal Module 4 discussion

The significant difference between IFRS and US GAAP are as follows; 1)Financial periods required US GAAP: Generally, comparative financial statements are presented; however, a single year may be presented in certain circumstances. Public companies must follow SEC rules, which typically require balance sheets for the two most recent years, while all other statements must cover the three-year period ended on the balance sheet date. IFRS: Comparative information must be disclosed with respect to the previous period for all amounts reported in the current periods financial statements. 2) Layout of balance sheet and Income Statement US GAAP: No general requirement within US GAAP to prepare the balance sheet and income statement in accordance with a specific layout; however, public companies must follow the detailed requirements in Regulation S-X. IFRS: IFRS does not prescribe a standard layout, but includes a list of minimum line items. These minimum line items are less prescriptive than the requirements in Regulation S-X. 3) Balance sheet presentation of debt as current versus non-current US GAAP: Debt for which there has been a covenant violation may be presented as non-current if a lender agreement to waive the right to demand repayment for more than one year exists before the financial statements are issued or available to be issued. IFRS: Debt associated with a covenant violation must be presented as current unless the lender agreement was reached prior to the balance sheet date. 4) Balance sheet classification of deferred tax assets and liabilities US GAAP: Current or non-current classification, generally based on the nature of the related asset or liability, is required. IFRS: All amounts classified as non-current in the balance sheet 5) Income statement classification of expenses US GAAP: No general requirement within US GAAP to classify income statement items by function or nature. However, SEC registrants are generally required to present expenses based on function (e.g., cost of sales, administrative). IFRS: Entities may present expenses based on either function or nature (e.g., salaries, depreciation). However, if function is selected, certain disclosures about the nature of expenses must be included in the notes. 6) Income statement extraordinary items criteria US GAAP: Restricted to items that are both unusual and infrequent. IFRS: Prohibited. 7) Income statement discontinued operations criteria US GAAP: Discontinued operations classification is for components held for sale or disposed of, provided that there will not be significant continuing cash flows or involvement with the disposed component. IFRS: Discontinued operations classification is for components held for sale or disposed of that are either a separate major line of business or geographical area or a subsidiary acquired exclusively with an intention to resell. 8) Disclosure of performance measures US GAAP: No general requirements within US GAAP that address the presentation of specific performance measures. SEC regulations define certain key measures and require the presentation of certain headings and subtotals. Additionally, public companies are prohibited from disclosing non-GAAP measures in the financial statements and accompanying notes. IFRS: Certain traditional concepts such as operating profit are not defined; therefore, diversity in practice exists regarding line items, headings and subtotals presented on the income statement. IFRS permits the presentation of additional line items, headings and subtotals in the statement of comprehensive income when such presentation is relevant to an understanding of the entitys financial performance. 9) Third balance sheet US GAAP: Not required. IFRS: A third balance sheet is required as of the beginning of the earliest comparative period when there is a retrospective application of a new accounting policy, or a retrospective restatement or reclassification that have a material effect on the balances of the third balance sheet. Related notes to the third balance sheet are not required. The difference which seems interesting to me me is - Balance sheet classification of deferred tax assets and liabilities. In US GAAP, Current or non-current classification, generally based on the nature of the related asset or liability, is required where as in IFRS, all amounts classified as non-current in the balance sheet. If there is a convergence between IFRS and US GAAP, I would choose IFRS as it is applicable in major parts of the world and in current global market, IFRS will help to maintain global records of the multinational without any different treatment from one country to the other.

References

Evans, M. E., Houston, R. W., Peters, M. F., & Pratt, J. H. (2015). Reporting Regulatory Environments and Earnings Management: U.S. and Non- U.S. Firms Using U.S. GAAP or IFRS. Accounting Review, 90(5), 1969-1994. doi:10.2308/accr-51008

https://www.sec.gov/spotlight/globalaccountingstandards/ifrs-work-plan-paper-111611-gaap.pdf

Tth, K., & Darabos, . (2016). THE GROWING IMPORTANCE OF INTERNATIONAL FINANCIAL REPORTING STANDARDS. Annals Of The University Of Oradea, Economic Science Series, 25(1), 834-840.