Accounting Theory Presentation on US GAAP, IFRS, and Convergence

This presentation provides an in-depth analysis of accounting theory, focusing on the differences and convergence between US GAAP and IFRS. It examines key areas such as revenue recognition, inventory valuation, and leases, highlighting the implications of these standards on financial reporting. The presentation explores the complexities of US GAAP and the flexibility offered by IFRS, emphasizing the benefits and challenges of convergence. It discusses the feasibility of convergence, considering factors such as the sharing of fundamental principles and the reluctance of some bodies to fully embrace it, while also acknowledging the support for convergence from other institutions. The conclusion underscores the importance of reliable and meaningful accounting standards, emphasizing how convergence can improve cost budgeting and revenue assessment for managers.

ACCOUNTING THEORY

INTRODUCTION
 US GAAP and IFRS are the most widely used
accounting standards
 There are many differences between the two
 Addressing the differences is the need of the
hour
 Unified approach is vital
 Component of both GAAP and IFRS will
enhance the AS and hence, convergence is
essential

US GAAP
 US GAAP is the accounting standard for
entities for US
 Rule based accounting system
 Provides financial information to the users
who needs them
 Cumbersome and complicated
 IFRS is needed as there is high enforcement
of current rules (Carmichael & Graaham,
2012)

IFRS
 IFRS stress upon the concept that accountant
should use the accounting interpretation that
provides the meaningful information
 IFRS supports the fair value method
 IFRS helps the company in ascertain the
current situation

RELEVANT STANDARD
A. Revenue Recognition
 Key performance indicator helps in
evaluating the company
 Project the most important number on the
Income Statement, as well as profitability
 Guides companies that have contract with
customers (Nobes, 2015)
 In new standard, company will recognize
revenue based on the transfer of promised
goods, as well as services

 Largest impact on the company
 It can influence the manner in which the company
bill the clients
 Business procedure can be redesigned
 Convergence will lessen the revenue needs
 The comparability of revenue will be more
prominent in nature (Carmichael & Graaham,
2012)
 Financial statements will be simplified

WHY CONVERGENCE
 US GAAP complex in nature
 Similar transaction will be dealt in a different
manner in different industry
 On the other hand, IFRS has deficit when it
comes to guidance for complex transactions

B. Inventory
 Defined as asset held for sale
 Utilize in the operations of business
 Convergence of GAAP and IFRS under the
valuation will disallow the usage of LIFO valuation
(Albu, Albu & Alexander, 2014)

 Before convergence Lease was either capital or
operating
 US GAAP has more detailed needs than IFRS that
specifies the ownership (Albu, Albu & Alexander,
2014)
 Similar disclosures on qualitative and quantitative
mechanism
 U.S. GAAP, ASC 330 helps in ascertaining cost for
the purpose of inventory (Ali, Ahmed & Henry, 2006)
 IAS2 needs the utilization of particular identification
for inventory

WHY CONVERGENCE
 LIFO is acceptable under GAAP
 Life prohibited under IFRS
 To ensure cost basis smooth in nature
convergence is essential and will eradicate
the difference (Peirson et. al, 2015)

C. Leases
 Contract through which the party makes land
available or equipment in return for the
payment.
 Lessens the risk of malfunction of equipment
 GAAP, as well as IFRS leads to guidance for
lessor and lessee (Nobes, 2015)
 As per new guidance, leases undertaken by
lessor and lessee should reflect the
subsistence and definition of assets, as well
as liabilities.

 Convergence will lead to better
understanding
 Enhanced harmonization for the companies
 Presence of less specific criteria when it
comes to lease classification
 Influence of the assets and liabilities in the
companies report