Essay on International Financial Reporting Standards

1061 Words 5 Pages
The globalization of business has resulted in the need for compatible accounting standards that can be used internationally for financial reporting. As a result, the International Financial Reporting Standards (IFRS) were developed by the International Accounting Standards Board (IASB) to unify the various financial reporting methods and create a single accounting standard which can be applied to any financial statement worldwide (Byatt). The global standardization of financial reporting will increase the readability and enhance comparability of globally traded companies’ financial statements, without the need of conversion or translation. There are a few main differences between the International Financial Reporting Standards (IFRS) and …show more content…
According to the International Financial Reporting Standards revenue recognition or collectability is altered for the probability that funds may or may not be collected. Therefore, based on a financial entity’s uncollectable rate, a given sale of a good or service will be adjusted for the uncollectible rate at the time of transaction (Kaiser). Inventory valuation is also one of the major differences between the U.S GAAP and the IFRS. Under the U.S GAAP financial reporting system, inventory may be evaluated through the LIFO method, the FIFO method or the average cost method. Under the IFRS the LIFO inventory valuation method is prohibited. However, the FIFO and average cost methods are still acceptable (Kaiser). Another major difference between the U.S GAAP and the IFRS is the valuation of long-term assets. According to the U.S GAAP, long-term assets such as property plant and equipment can only be recorded at original cost. Under the U.S GAAP, a financial entity will record the initial purchase cost of a long-term asset and will use this figure to depreciate the asset throughout the asset’s useful life. Upon the sale of the long-term asset, the asset’s book value will determine a gain or loss. According to the International Financial Reporting Standards, long term assets can be either recorded at original cost or recorded at fair market value (Kaiser). Under IFRS, a gain or loss on the sale of a long-term asset can be based

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