How Sweden's Accounting Financial Statements and Functions Differentiate from That of the USA - Research Paper Example

How Sweden's accounting financial statements and functions differentiate from that of the United States Table of Contents Study 2 Conclusion 5 References 6 Introduction The financial statements and functions often differ among various nations. Till the recent past, the US GAAP (Generally Accepted Accounting Principles) was more popular throughout the world but with time the GAAP has been replaced by a newer concept known as the IFRS (International Financial Reporting System). While most nations shifted to the latest version, United States still favors GAAP and believes that the IFRS has no guidance and comprise of several loopholes. It also believes that the adoption of IFRS will lead to chaos and several accounting scandals. Sweden on the other hand being a part of the European Union has adopted the IFRS as IAS regulation from the year 2006 (Ernest & Young, 2009). Study Prior to the year 2006, Sweden had been following SFASC (Swedish Financial Accounting Council) Accounting Standards. A lot of changes have been brought about in the financial system throughout the years in Sweden. But with the acceptance of IFRS in Sweden quite a few changes and amendments have been made in order to marginalize with the other nations of the European Union (Delloite, 2010). There have been a lot of differences between the US GAAP and the IFRS. One strong difference between the two is on account of the intangible considerations. According to the GAAP, the acquired intangible assets are always recognized at fair values. Even the cost allocation is done on individual assets. The intangibles also have a definite life amortized over the period. Few of the examples of such individual assets are research and development, advertising costs; start up costs and even website developments. Whereas according to the guidelines of IFRS followed by Sweden, the intangibles are recognized only if it has a scope of future economic benefit and has reliability in measuring. Even the initial measurement is done on the cost of the intangible. The mergers and acquisitions i.e. the intangibles are valued at fair cost and the revaluation is also made on a regular basis in order to obtain the actual cost. There is a vast difference in between GAAP and IFRS on the basis of revenue. In case of the GAAP, the revenue is recognized on four essential criteria that are persuasive evidence, determinable or fixed pricing, delivery and the assurance of collection whereas in the case of IFRS, the major five criteria are transfer of risk and reward, reliability of measurement, reliability of measurement of the costs incurred or to be incurred, non continuation of management involvement and it also considers the probable economic benefits. Again in the case of US GAAP, several other considerations such as that of right of return, software revenue, real estate revenue, franchise revenue, long term contacts and multiple deliverables are also considered under the revenue recognition in terms of service whereas in the case of IFRS the service measures reliability, the probable economic benefit, costs incurred and cost to be incurred and also the measurement of the stages of completion (Ernest & Young, 2009). There are several other different concepts and methodologies between the two. Both have different stakes in the methodologies for the impairment of the PP&E. IFRS has the scope for the recovery of the impairments whereas GAAP do not. Again there are greater differences in the revaluation accounting and recognition and the measurement of the provision that also includes restructuring. In the light of the private companies more detailed disclosures are made under the IFRS than the US GAAP (Hjelström & Schuster, 2008). Rather than the practical approach a greater difference lies in the conceptual approach in between the two. The US GAAP has a more detailed orientation towards the rule whereas the IFRS is basically based on the principles. The principle based accounting system provides a greater scope to modification of transactions. Similar transactions can be recorded differently under different situations. It can be again highlighted that the US GAAP has major focus on the literature of the methodologies whereas the IFRS provides major focus on the facts and the reviews of the patterns. There are several other criteria on which the two can be differentiated. Consolidation is one such aspect on which the difference can be made. On one hand the US GAAP facilitates a risk and reward model whereas the IFRS provides a more controlled model. Again in the case of IFRS, a few of the items which comprise of extraordinary items are not differentiated but in the GAAP these items are showed below the net income. Even there are greater differences in the calculation of earning per share between the two concepts. In the case of the IFRS, the earning per share calculation does not take into account the interim period calculation of the individuals but it is not the same in the case of GAAP. The GAAP takes into account the calculation of the average of the incremental shares of the interim period. Again inventory computations have different standings. In the case of the IFRS the firms cannot use the LIFO (Last In First Out) method of accounting of inventories. But in the case of the GAAP principles, the firms do have the choice of selecting between both LIFO as well as FIFO (First In First Out) method of inventory calculations. In the case of the development costs, such costs can be capitalized if the IFRS is used but in the case of GAAP such costs are considered as expenses (Meulen & Et. Al., n.d.). Conclusion There has been a simple transformation on the accounting of financial statements and practices throughout the world. It has made a lot of changes even in the US. The US has understood the importance of the IFRS and few of the firms have started following it. But still there is greater difference in the methodologies and practices of both US and Sweden, which is a part of the European Union (Ding & Et. Al., 2007). References Delloite, (2010). Accounting Standards Update by Jurisdiction. Sweden. Retrieved Online on September 22, 2010 from http://www.iasplus.com/country/sweden.htm Ding, Y. & Et. Al., (2007). Differences between domestic accounting standards and IAS: Measurement, determinants and implications. Journal of Accounting and Public Policy. Retrieved Online on September 22, 2010 from http://www.ceibs.edu/faculty/dyuan/Ding_JAPP2007.pdf Ernest & Young, (2009). US GAAP vs. IFRS. The Basics. Retrieved Online on September 22, 2010 from http://www.uic.edu/classes/actg/actg593/Readings/IFRS/E&Y-US-vs-IFRS-The-Basics.pdf Hjelström, A. & Schuster, W., (2008). Standards, management incentives and accounting practice– lessons from the IFRS transition in Sweden. Universitat Mannheim. Retrieved Online on September 22, 2010 from http://area1.bwl.uni-mannheim.de/fileadmin/files/Research_Seminar/2008/Schuster_Paper_Foko_011008.pdf Meulen, S. & Et. Al., (No Date). Attribute Differences between Us GAAP and IFRS Earnings: an Exploratory Study. Faculteit Economie en Bedrijfswetenschappen. Retrieved Online on September 22, 2010 from http://www.econ.kuleuven.be/eng/tew/academic/afi/pdfs/0511.pdf Read More