As you may be aware, there are currently two major bodies governing accounting – the FASB and the IASB. Companies in the United States are required to report their financial results in accordance with Generally Accepted Accounting Principles (GAAP). Over 120 countries around the world report in accordance with IFRS (International Financial Reporting Standards) or some approximation thereof. The SEC (Securities and Exchange Commission) has final responsibility for overseeing the convergence of these accounting methodologies in the United States. In general, it is said that GAAP is more rules based and that IFRS is more principles based. Adherence to one standard or the other results in financial statements that can differ significantly in their presentation. The Blackboard case site has a synopsis of some of the remaining significant differences between GAAP and IFRS.
Your firm has asked you to examine a client’s financial statements and to make a recommendation for the appropriate treatment to convert them from GAAP to IFRS. The client is seeking financing from an international bank and they require the statements to be reported under IFRS. The firm has assigned teams to review various areas that may be impacted. The partner-in-charge has directed you to select a specific area that you’ll be researching.
Your assignment is to write a four page executive briefing memo to provide guidance on what changes will be required to convert the statements from GAAP to IFRS for the item you’ve selected. Your memo should cover the following:
1. Open your paper with a general discussion of the specific area you’ll be addressing so that the client (who is not familiar with convergence issues) can understand the issue.
2. Discuss the current treatment under GAAP and cite the appropriate codification that governs the treatment of the item.
3. Discuss the treatment required under IFRS and cite the appropriate codification that governs the treatment of the item.
4. Discuss the change that will be required to convert the statements from GAAP to IFRS. Be specific with respect to adjustments required, if any, to the balance sheet and/or the income statement, financial disclosures, etc.
5. Provide a clear and concise example of how the item is currently presented (under GAAP). The example should be shown in U.S. dollars.
6. Provide a clear and concise example of the change that will be required to convert the statements from GAAP to IFRS. The example should be shown in U.S. dollars. You may wish to present a journal entry as well.
7. Provide a short conclusion that ties the paper together.
8. Be sure to clearly identify jargon (terminology) that you use in your paper. The owner of the company did not have the benefit of attending Temple and is unfamiliar with accounting.
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