GAAP versus IFRS on the PP&E

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GAAPversus IFRS on the PP&ampE

GenerallyAccepted Accounting Principles (GAAP) used in the United States ofAmerica are significantly different from the International FinancialReporting Standards (IFRS). The differences relate to the formationof the movement schedule that is the official accounting reportingplatform for plant &amp equipment, property and tangible investmentsbut for the impairment accounting differences (Global Issues andInsights 4). The differences are

Depreciation:US GAAP allows the depreciation component, but it is not muchrecognized to be regularly in use. It shows that in GAAP, a propertyof an asset is assumed not to change from the day it is purchased tothe day it is disposed of. In IFRS, when the lifelines of the assetsare different, depreciation is taken as distinct (Global AccountingStandards 7). Further, depreciation is a major component in reportingthe profits for a business entity.

Revaluation:In US GAAP, revaluation is not part of the accepted accountingprinciples. It is assumed that the asset does not change in value butremains of the same value from the beginning of purchase to the dateit is disposed of. A business entity while reporting its assetsaccounts, may utilize the revaluation model so as to measure theproperty, plant, and equipment at the real value (US GAAP versusIFRS: The Basics 13). This means that IFRS recognizes that an assetcan either depreciate or appreciate for purposes of sale oracquisition.

InvestmentProperty: US GAAP has not provided any guidance on how investmentproperty would be treated in the financial reports. Whereas IFRSmanages investment property at fair value, and any change in valuerecorded in the income statement as revenue or as an expensedepending on whether it appreciates or depreciates (Global AccountingStandards, 9).

OverhaulCosts: US GAAP offers options in treating major revisions in therecord as either treating costs as expenses, or treating it as adistinct component or amortizing costs over the lifeline (US GAAPversus IFRS: The Basics 14). IFRS views overhaul as a totalreplacement of the asset and should be treated as a capitalexpenditure or capital gain (US GAAP versus IFRS: The Basics 14).

USGAAP versus IFRS: Pros and Cons

Onemerit of IFRS is that companies in the US once they go global willnot have to prepare two sets of financial statements (US GAAP versusIFRS: The Basics 15). The American corporations will no longer usethe GAAP, and this will save costs which would otherwise be used tohire two teams to work with different standards, thus becoming costeffective.

Anotheradvantage of converging to IFRS is that it will improve efficiency intrading or transact with foreign companies as they will be using thesame reporting standards, analysis and comparativeness of economicefficiency (US GAAP versus IFRS: The Basics 13).

Thethird advantage of IFRS is that it is principle-based, flexible andtherefore accommodative. On the other hand, GAAP is more rulesbased, and creates a controlled and particular way to account forindividual items. IFRS gives a sense of discretion for organizationswith diversified and necessary accounts (Global Accounting Standards13).

Onedisadvantage of the principle-based IFRS is that it is lenient andcould have some quiet areas with no guidance on various areas, yetthe accounts should be as transparent and definite as possible(Global Accounting Standards 13).

Anothershortcoming of IFRS regards the micro, small and medium-sizedenterprises. They would incur unnecessary costs in implementing thestandards as they do not need all the required components of accountsdue to their simple being (US GAAP versus IFRS: The Basics 16).

Convergence

Convergenceis a great way of setting harmonized standards for the whole world.Convergence will also globalize the business entities in regards tofinancial reporting, and any accounting professional can handle allaccounts emanating from any corner of the globe (Global Issues andInsights 8). Whether it is auditing, preparation, analysis orstudying, the convergence of principles will make it easy for theprofessionals and those seeking to become.

Itis further noted that convergence will create situations wherecompanies learn how to be cost effective as they could send theirstatements and compare with the rest of the world in regards totreatment of components, needs for reforms and improvements andchanges as well.

Oneproblem is created for the small companies which have to comply withthe principles of IFRS even without all various factors of accountingleading to them incurring extra and unnecessary costs (US GAAP versusIFRS: The Basics 16).

FASBand IASB, the bodies tasked to facilitate convergence, had not donemuch by 2013 February. On the date, the joint committee publishedhigh profile update on the status and the way forward schedule forthe remaining convergence part. The update showed the state ofimpairment level on financial instruments. Convergence should befast-tracked and implemented a lot faster so as to harmonize theglobal village being created through trade and information sharing(Global Issues and Insights 12).

WorksCited

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/IFRS-GAAP

parisons/Documents/IFRS-compared-to-US-GAAP-2012.pdf

http://www.ey.com/Publication/vwLUAssets/US_GAAP_versus_IFRS:_The_basics_November

2012/$FILE/US_GAAP_v_IFRS_The_Basics_Nov2012.pdfhttp://www.sec.gov/spotlight/globalaccountingstandards/ifrs-work-plan-paper-111611-gaap.pdf

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