Differences on the Income Statement
Extraordinary Items: One difference of using IFRS and GAAP on the Income Statement is the use of extraordinary items. Under the IFRS rules the use of extraordinary items are prohibited. GAAP rules however allow the use of extraordinary items. Extraordinary items are caused by a gain or loss of an event that is unusual and infrequent. Some examples of extraordinary events are natural disasters or lawsuits. Extraordinary events are not likely to happen again anytime soon. On a GAAP financial statement extraordinary items are reported net of tax and are not reduced by related tax benefits. IFRS stopped recognizing extraordinary items on their income statement in 2002. They have a separate disclosure required
…show more content…
GAAP is required to list assets, liabilities and equity in decreasing order of liquidity. If a company uses IFRS then there is no specific format. Normally on IFRS the company has to present current and noncurrent assets and current and noncurrent liabilities as separate classifications. The only exemption of this is when liquidity presentation provides more relevant and reliable information.
Deferred Taxes: Another difference between IFRS and GAAP on the balance sheet is the classification of deferred taxes. For IFRS deferred taxes are always classified as noncurrent and are shown on a separate line on the balance sheet. The GAAP rules allows deferred taxes to be listed as both current and noncurrent depending in the classification of the related asset or liability. Another difference of deferred taxes is that for GAAP rules no deferred tax is recognized on the remeasurement from local currency to functional currency. For IFRS rules deferred tax is recognized on remeasurement of
…show more content…
For GAAP financial statements there is more flexibility. Under GAAP rules acceptable accounting methods for determining cost of inventory are FIFO, LIFO, weighted average cost and specific identification. The downfall to more flexibility is that it is harder to compare the amount of inventory from different companies because the use of different methods can alter the amount of inventory recorded. Under IFRS principles the main accounting methods for determining cost of inventory is FIFO and weighted cost. LIFO is not allowed under IFRS principles and specific identification method is only allowed for inventory items that are not ordinarily interchangeable and for goods or services produced and segregated for specific
In order for Jim Turin & Sons, Inc to have used this method of accounting it would have had to match the cost of the merchandise with the revenue earned from the sale. Using the matching of revenue and cost the company would have had to have kept an actual inventory and maintained records of the costs associated with said inventory. Since the costs are not immediately deducted under the accrual method they are deferred to the year when the merchandise is
The changes in IFRS will affect some slight modifications to significant amendments of principles. It can affect different areas of financial statements and information. For example, extensive disclosure requirements, financial statements and how specific elements will be recognize and measured. Those elements are financial instrument and employee benefit (IFRS, 2012).
Companies have to file tax returns that are in accordance with tax regulations and rules developed by the Internal Revenue Service (IRS). The amounts reported under taxable income and financial income differs. These amounts are different because financial income is based on Generally Accepted Accounting Principles (GAAP) which uses the accrual method to report revenues. Taxable income on the other hand, which is determined by rules and regulations of the IRS, follow a modified cash basis to determine revenue. Therefore, it can be seen that these amounts differ because of the differences between tax regulations and GAAP.
The calculation of inventory expense on the operations statement and the posted balance on the statement of condition (balance sheet) may be approached in several different ways. List and discuss the various methods of inventory valuation that may be used. Indicate in your response why a certain method may be used in certain situations. What are predominant methods used in health care organizations (tax exempt or for profit)
Include as discussion of the topic, subtopics, sections and subsections in your answer. The new Codification does not change GAAP, but all existing ...
Another remarkable difference between the two standards is their respective alternatives to account for small ticket leases such as printers, tablets and office equipment or fixtures. IFRS provides comprehensive guidance to what defines a small ticket lease and does not require such leases recognized on balance sheet. On the other hand, FASB provides no exemptions for small ticket leases as FASB still maintains accounting rules that allow the exclusion based on the significant implication to the user.
GAAP and IFRS have their similarities as well as differences. “GAAP is the accounting standard used in the US, while IFRS is the accounting standard used in over 110 countries around the world. GAAP is considered a more rules based system of accounting, while IFRS is more principles based” (Diffen). The Diffen site compared GAAP and IFRS elements using a chart. The chart is broken down into sections such as performance elements, required documents, inventory estimates and reversal, purpose of framework, etc. GAAP and IFRS both use revenue, expenses, assets, and liabilities as performance elements; but with GAAP gains, losses, and comprehensive income are added. GAAP and IFRS also use some of the same financial statements such as the balance
IASB revenue recognition benchmarks entering the merging venture comprised of two gauges, IAS 18 and IAS 11. IAS 18 worries about revenues including offer of products, administrations, intrigue, eminences and profits. IAS 11 centers around development contracts. Likewise with all IASB gauges, these standard give standards-based direction without particular direction at the exchange level. The guidelines of U.S. GAAP, gave by FASB, then again comprise of an arrangement of more than one hundred revenue related direction of particular principles on an industry and exchange level; in any case, a great part of the general direction is given by Statement of Financial Accounting Concepts No. 5, a non-legitimate wellspring of U.S. GAAP. The IASB and FASB are ready to embrace a joint standard on revenue recognition. This new world standard would adopt an advantage obligation strategy, for example, that of pre-meeting IFRS, while containing more particular direction than IFRS clients are acquainted with seeing, taking a signal from the GAAP guidelines of the United
...ciates its assets on a straight line basis. Both IAS 16 and GAAP, depreciates assets over its expected useful life.
Regarding form, management accounting does not provide for any standard format of preparing management accounts.It follows any size as long as the information is well presented to internal users and management of an organization to enhance decision-making. On the other hand financial accounting prescribes a composition for preparing published financial statements and accounts following a standard size as guided by Generally Accepted Accounting Principles (GAAPs) and International Financial Reporting Standards (IFRS).In financial accounting, there are concepts which accountants must adhere to in preparing financial statements.The accountants are guided by uniform concepts and standards of reporting which is not the case in managerial
In its current practice, the roles and functions of cost accounting includes additional functions. More specifically, it can be described as more than an inventory tracking system. This is because cost accounting entails defining the charges of activities and goods (Horngren & Srikant, 2000). Because of its many roles and functions, this accounting method has been of great help to growth and expansion of business planning and management. Again, the reports offer assistance in the planning and growth projections for different business functions and units within the organization. The information cost accountants offer different uses, some of which aid in the controllership function, as well as the industrial
Cost Accounting: Its role and ethical considerations Introduction: Accounting is the process of identifying, measuring, and communicating economic information about an entity for the purpose of making decisions and informed judgements. The major areas of within the accounting are: Financial Accounting, Managerial Accounting/Cost Accounting and Auditing- Public Accounting Managerial accounting is concerned with the use of economic and financial information to plan and control the activities of an entity and to support the management in planning and decision-making process. Cost accounting is the subset of managerial accounting and it helps management in determination and accumulation of product, process or service cost. Role of Cost Accounting: Increased competition and uncertain business conditions have put significant pressure on corporate management to make informed business decisions and maximize their company?s financial performance. In response to this pressure, a range of management accounting tools and techniques has emerged.
(i) Judgement and materiality play a significant role in helping to ensure that the selection of accounting policies in presenting the financial statements for a true and fair picture of the company’s financials. This means that entities should provide the financial statements with comparability, consistency and clarity to users of these statements. Entities must follow accounting policies required by IFRS and AASB should be relevant to particular circumstance.
GAAP is exceptionally useful because it attempts to regulate and normalize accounting definitions, assumptions, and methods. Because of generally accepted accounting principles one is able to presuppose that there is uniformity from year to year in the methods that are used to prepare a company's financial statements. And even though variations might exist, one can make realistically confident conclusions when comparing one company to another, or when comparing one company's financial statistics to the statistics for the industry as a whole. Over the years the generally accepted accounting principles have become more multifaceted because financial transactions have become more intricate (Accounting Principles, 2011).
In classified balance sheet categories of assets are: current assets, investments, fixed assets, intangible assets, etc.