STUDENT NAME
Dr. Kim Cole
IFRS vs GAAP
ACC291
June 20th, 2016
IFRS vs. GAAP
In 2002, the Security Exchange Commission proposed to convert from Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS) for publically traded companies in the United States (Kimmel, Weygandt, & Kieso, 2013). The Sargeant (2015) website states that GAAP is rule-based accounting standards, detailing rules accountants follow when preparing financial statements and that IFRS are principle-based accounting standards that are key objectives to ensure accurate reporting of financial statements. This proposal comes after controversy surrounding the fraudulent activities of companies and the need for more regulations and controls on financial reporting. The question remains what are the differences between IFRS and GAAP and how will implementing IFRS affect all concerned.
According to The Cohen (2011) website, fair value is the price collected or received from the sale of an asset to transfer the liability of a transaction at the measurement date. It states that disclosing how fair value is measured for assets and liabilities provides a more accurate picture of the value of assets. Both IFRS and GAAP require firms to include information regarding fair value measurement practices in the notes of financials (Kimmel, Weygandt, & Kieso, 2013). Both specify that assets are reported at book value or fair value determined according to the circumstances, and assets with similar classifications must receive the same valuation treatment. The problem is certain financial tools are reported at their reasonable value, and other reported assets are amortized resulting in a picture that looks like two companies instead of one (Cohen, 2011).
Component depreciation occurs when an asset has fundamentally different parts that should be treated differently in regards to depreciation (Rusnak, 2009)....