IFRS vs. GAAP
MGT 6030
IFRS vs. US GAAP assignment
In this assignment, I will talk about four ways in which financial reporting can differ between US GAAP and IFRS. The first issue is the way in which inventory is carried from period to period. Another is the revaluation of Property, Plant, and Equipment, which is allowed under IFRS. US GAAP does not allow such flexibility. The next difference I found interesting was that US GAAP has specific guidelines surrounding when to expense Advertising Costs. Given how global advertising has become nowadays, I thought this would appealing to look at. The last difference I want to study is how the treatment of certain costs in interim periods can vary between US GAAP and IFRS. All of these differences can result in significantly different financial statements and major headaches to financial analysts across the globe.
Inventory, in some industries, can be the single most expensive asset that a company carries on its balance sheet. The method in which their value is calculated can have enormous impacts on stated financial position of a company. Let’s take an example of my company McKesson. We are one of the United States largest drug distributors and we can carry a large amount of inventory at any one time. Under normal market conditions, using the FIFO method for recording inventory may be the prudent calculation and result in the highest stated revenues. However, if the price of a certain ingredient for a particular drug sky rockets because of a worldwide drought, then it would make more sense to use the LIFO method. This is because the LIFO method would result in higher Cost of Goods Sold, and thus less Taxable Income.
IFRS does not permit companies to use the LIFO method, which seems odd given that IFRS is generally considered to be less-restrictive, principles-based approach versus the rules-based approach US GAAP models. Try to imagine yourself being a financial analyst who is attempting to decide between two international
IFRS vs. US GAAP assignment
In this assignment, I will talk about four ways in which financial reporting can differ between US GAAP and IFRS. The first issue is the way in which inventory is carried from period to period. Another is the revaluation of Property, Plant, and Equipment, which is allowed under IFRS. US GAAP does not allow such flexibility. The next difference I found interesting was that US GAAP has specific guidelines surrounding when to expense Advertising Costs. Given how global advertising has become nowadays, I thought this would appealing to look at. The last difference I want to study is how the treatment of certain costs in interim periods can vary between US GAAP and IFRS. All of these differences can result in significantly different financial statements and major headaches to financial analysts across the globe.
Inventory, in some industries, can be the single most expensive asset that a company carries on its balance sheet. The method in which their value is calculated can have enormous impacts on stated financial position of a company. Let’s take an example of my company McKesson. We are one of the United States largest drug distributors and we can carry a large amount of inventory at any one time. Under normal market conditions, using the FIFO method for recording inventory may be the prudent calculation and result in the highest stated revenues. However, if the price of a certain ingredient for a particular drug sky rockets because of a worldwide drought, then it would make more sense to use the LIFO method. This is because the LIFO method would result in higher Cost of Goods Sold, and thus less Taxable Income.
IFRS does not permit companies to use the LIFO method, which seems odd given that IFRS is generally considered to be less-restrictive, principles-based approach versus the rules-based approach US GAAP models. Try to imagine yourself being a financial analyst who is attempting to decide between two international