IFRS

Question 1

What is it?

Answer 1

International Financial Reporting Standards

Provides global framework for how public companies disclose and prepare financial statements

Provides general guidance rather than rules for industry-specific reporting

Convergence: GAAP to IFRS over time

Question 2

Pros

Answer 2

Comparability: foreign and domestic companies will better be able to understand each other’s financial statements since they will be using the same standards.

Flexbility: principles rather than rules. Companies can come up with a reasonable valuation using whatever means they deem necessary.

Single set of standards: cut costs to which foreign companies have to adhere to U.S. standards and vice versa.

Expansion: public and private companies can begin doing business in foreign markets since both parties will understand the financial information reported.

Question 3

Cons

Answer 3

Flexibility: principles instead of rules. Companies can use whichever method will yield the best results.

Coversion: may be expensive, time consuming, and difficult. Especially for small businesses.

Education: difficult to learn considering the majority of accountants and auditors have learned GAAP. May also be a limit of the number of classes available.

Regulation: difficult. Accounting issues like extraordinary gains/losses and LIFO are not allowed under IFRS