Fiscal and Monetary Policy Fluctuations - Essay Example

A company needs to convert from GAAP to IFRS. A company can submit its financial statements on an identical basis as its foreign opponents by adopting IFRS, making comparisons less complicated. In addition, organizations with subsidiaries in areas that permit or need IFRS may have the capacity to utilize a single accounting language in the company. Also, companies may need to convert from GAAP to IFRS if they are a subsidiary of an international organization that should employ IFRS, or if they have an external financier that must utilize IFRS. The United States corporations will benefit by converting from GAAP to IFRS. One, IFRS allows extra flexibility than United States GAAP, and because stock option and bonus schemes normally offer managers incentives to enhance earnings, this flexibility will probably be utilized to enhance the income of U.S. corporations more frequently than it will be employed to lessen earnings. Two, converting to IFRS from GAAP will give the corporations in America more responsibility in the area of asset valuation as a complete discretion that is also likely to enhance the earnings of U.S corporations. Finally, in the field of research and development costs and the associated field of homegrown intangible asset valuation, IFRS is more liberal than GAAP. IFRS permits only development costs to be integrated into the assets of the corporations, thus, not expensed against earnings (Ciesielski, 2008).
Question 2
One, Acquired intangible assets under GAAP are identified at fair value. In contrast, under IFRS, it is solely identified if the asset has measured dependability and will have an imminent economic gain. Here, IFRS will be the most beneficial method for financial statement users. Two, under GAAP, either first-in, first-out, or last-in, first-out inventory estimates may be utilized while under IFRS, the last-in, first-out system of inventory accounting is not permitted. Therefore, the most beneficial method to financial statement users is GAAP. Three, if inventory is written down, the write-down may be overturned in the future if particular stipulations are met under IFRS. Conversely, under GAAP, once inventory has been written down reversal is not allowed. Here, IFRS is the most beneficial method. Finally, The conditions for revenue recognition and revenue under IFRS and GAAP are somewhat dissimilar. GAAP gives extra specified guidance than IFRS (Ciesielski, 2008). Therefore, GAAP is the most beneficial method to financial statement users in this case.
Question 3
One, there are several unknown risks that United States corporations will encounter. These unknown risks are also not predictable to experts. Two, IFRS offers little guidance on specified application and interpretation of the standards. This definite difference from existing practice will require corporations in the United States to employ additional judgment in understanding specific standards and their purpose for the business activities of the corporations. Finally, even if the duration experienced by external auditors remains unchanged, more expert senior personnel may be needed to assess the corporations’ management application of verdict, thus, affecting the leverage of audit engagements and staffing mix. Three techniques may be used to overcome these obstacles. One, there should be consistent and comprehensive accounting standards that communicate economic reality to a corporation. Two, a corporation should have sufficient corporate governance practices which will guarantee suitable internal controls and adequate execution of accounting standards. Finally, there should be effective and efficient audits that will allow external dependability to the information prepared by a corporation following referred standards (Ciesielski, 2008).
Question 4
Two long-term conversion issues on accounting for leases by the lessees are leasehold improvements and percentage rent. Leasehold improvements are lastingly fixed to the property, and given back to the lessor at the expiry of the lease. The worth of the lease improvements must be depreciated and capitalized over the leasehold improvements' life or the lesser of the lease life. If the life of the leasehold improvement goes beyond the life of the original term of the lease and into an option time, usually that option time should be deemed part of the life of the lease. Percentage rent is popular in retail store leases. This is a premium rent fee that the lessor needs and is regarded as a period expense (Sullivan & Sheffrin, 2003).
Finally, these companies may benefit by employing IFRS if they want to raise funds abroad (LeRoy, 2011). Read More