Summary: As a group we have decided to do our project on the fundamental differences between last-in, first out (LIFO) vs. first-in, first out (FIFO) under the Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS). LIFO vs. FIFO under GAAP and IFRS are an essential part of accounting. We tend to know more about GAAP rather than IFRS because with accounting we are trained to be in compliance with GAAP. Although we should be in compliance with GAAP that does not mean it is necessarily better than IFRS. Or does it? All in all we feel this topic is an important aspect of accounting and that we should know more about the difference in depth between the two. Introduction: There are three forms of inventory costing methods we tend to use LIFO, FIFO, and weighted average cost. “Average-cost method prices items in the inventory on the basis of the average cost of all similar goods available during the period” (Kiso, weygandt, Warfield 429). The two most common methods used that we are going to discuss are LIFO and FIFO. As the name implies, LIFO stands for last-in, first out, which implies that the last product that is placed on the market is the first one to be sold/ purchased. FIFO meaning first-in, first out is the opposite of LIFO, the first item placed is typically the first item to be sold. These two accounting methods tend to differ under GAAP, which is rule based and IFRS, which is considered to be principle based. Differences between GAAP and IFRS A major difference between U.S.GAAP and IFRS is GAAP is rule-based while on the other hand IFRS is considered to be principle-based. What they mean by this is simple. Under GAAP, when preparing a company financial statements they ... ... middle of paper ... ...first out (LIFO) method. Conclusion “While LIFO offers significant benefits over FIFO from a tax reporting stand point, the United States is considering banning the use of LIFO”. Majority of the companies in the United States use the FIFO method, but they also have the choice of using LIFO under U.S.G.A.A.P. The IFRS has completely withdrawn from using the LIFO method. “Many companies believe the repeal of LIFO would result in an incredible tax increase for both large and small businesses.” Now they are focusing on blending the two accounting standards to reduce the differences between the two GAAP and IFRS. With a single set of standards for the whole world, it will be easier to deal with and to comprehend. International investors will be able to compare financial results of companies from the different countries with ease. (FIFO vs. LIFO: What is the Difference?)
In the second year of business at Golf Challenge Corporation the company is struggling. The cost of their inventory is rising, and they are in grave danger of losing their bank loan (their prime source of financing) due to not meeting the required financial ratios agreed and set forth by the bank at the time the loan was given. The owner comes up with a solution, and figures that instead of using Last in-First out (LIFO) the company can use First in-First Out inventory cost system (FIFO) and meet their required financial ratios set forth by the bank. Ultimately, Golf Challenge Corporation should not submit documents to the bank using FIFO as opposed to their previous system LIFO in order to meet the bank requirements
Switching to IFRS will help not just companies but also investors and public globally to compare financial statements. If every country has different financial standards, if would be problematic to compare how each company stands because they are not the same.
The goal of the Codification is to simplify the organization of thousands of authoritative U.S. accounting pronouncements issued by multiple standard-setters. To achieve this goal, the FASB initiated a project to integrate and topically organize all relevant accounting pronouncements issued by the U.S. standard-setters including those of the FASB, the American Institute of Certified Public Accountants (AICPA), and the Emerging Issues Task Force (EITF)
The new financial reporting standard will retain capital leases and operating leases. The existing classification criteria to distinguish between the two leases are mostly unchanged. However, there are no explicit bright-lines anymore because the board is switching from a rule based accounting to a principle based accounting.
International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) are different because the GAAP is a rule based because they use a set of guidelines and objectives and IFRS is principal based and has a different set of standards that they follow. The GAAP being more of a rule based means that they follow a list of comprehensive rules and these rules must be followed in order to accurately prepare and report financial statements. The GAAP takes the approach where they examine a more focal point in the writing of the financial reports. The IFRS takes the approach of using and reviewing the specific guidelines more thoroughly through the financial statements.
Logue, A. C. (2014, April 21). Comparing U.S. GAAP and IFRS Accounting Systems. Retrieved from Dummies:
Marshall, M.H., McManus, W.W., Viele, V.F. (2003). Accounting: What the Numbers Mean. 6th ed. New York: McGraw-Hill Companies.
This essay will discuss the influence NZ Framework brings to financial reporting standards that included NZ GAAP based on the debate between principles-based and rule-based. In particular, it will portray: (1) the nature and orientation of financial reporting framework and GAAP; (2) the main improvement of NZ Framework and the applications framework guided in NZ GAAP.
Private and public accounting has long been discussed and disputed in regards to financial reporting. Since the Financial Accounting Standards Board (FASB) was created in 1973, accountants have called for different accounting regulations for private and public accounting sectors, as private companies do not have the resources to meet the complex requirements of public companies. Private companies currently are not required by law to issue annual or quarterly financial statements (James, 2012). Private companies do, however, have the option to apply the U.S. Generally Accepted Accounting Principles (GAAP), cash basis, or accrual accounting to their financial statements (James, 2012).
One of the most debatable topics in the accounting industry today is the extent in which we should make the financial statements understandable to the general population. The FASB currently gears its reporting standards toward...
IFRS (International Financial Reporting Standards) is used in 110 different countries, however the GAAP (Generally Accepted Accounting Principles) is only used in the U.S. These two accounting practices report financial data differently, specifically intangible assets. Intangible assets under GAAP are recognized at fair value, however under IFRS “they are only recognized if the asset will have a future economic benefit and has a measured reliability” (2015, GAAP vs IFRS). There are other differences between these two practices for revaluations, advertising costs, goodwill, and internally developed intangible
The GAAP (US Generally Accepted Accounting Principles) is the accounting standard used in the US, while IFRS (International Financial Reporting Standards) is the accounting standard used in over 110 countries around the world. The GAAP is considered a more “rules based” system of accounting, while IFRS is more “principles based.” Soon, the U.S. Securities and Exchange Commission is looking to switch to IFRS by 2015. The Comparison highlights some significant U.S. GAAP and IFRS requirements, which we believe are most commonly encountered in practice. This Comparison may be helpful to individuals that are new to IFRS who are trying to gain an appreciation of the more significant requirements of IFRS and how these requirements differ from those in the United States.
One may be forced to ask if the adoption of a uniform global financial reporting framework (IFRS) would enhance financial performance. Theoretically, IFRS can help to promote excellent firm performance. However, there is as yet no robust empirical evidence that this causal relationship is quantitatively significant. Performance simply means any recognized accomplishment or the achievement of set goals. (IRONKWE, Uwaoma) A company that is performing well is one that is successfully achieving its goals and is efficiently executing suitable strategies. (Nsijilem, S.C, 2015)
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).
...pt. That is however, not to say that it is without its problems, as previously discussed, it can possibly lead to a two tier system of reporting, despite reducing complexity its flexibility can limit comparability and place a heavy onus in terms of judgement of the preparer. Finally its simplifications may perhaps infringe upon the ease of which a private entity wishes to become public listed company. However, the disadvantages of adopting the standard are fat outweighed by the potential benefits it offers. As more time goes on, we will no doubt see more countries and companies adopting the standard. If capital providers (primarily banks) clearly understand and have confidence in the financial statements prepared under the guidance of the standard; then an SMEs ability to obtain the capital it need improves. Ultimately the economy in which it operates improves.