International Financial Reporting Standards and Xbrl
By: aansah22 • Research Paper • 922 Words • December 8, 2014 • 683 Views
International Financial Reporting Standards and Xbrl
International Financial Reporting Standards (IFRS) & XBRL
Andre Ansah
Prof. Niemotko
Intermediate Accounting I
December 8, 2014
Review of Literature
The Globalization of business and finance has resulted in the development of International Financial Reporting Standards (IFRS) or GAAP. IFRS was developed by the International Accounting Standards Board (IASB) and is becoming the global standard for the preparation of financial statements for publicly- held companies. Over 12,000 companies in the almost a hundred countries have already adopted IFRS. The growing acceptance of IFRS for U.S. financial reporting represents a fundamental change for the U.S. accounting profession.
Is the U.S. required to implement IFRS?
In September 2002 the IASB and the FASB agreed to work together, in consultation with other national and regional bodies, to remove the differences between international standards and US GAAP. This was known as Norwalk agreement, and approximately 120 nations and reporting jurisdictions permit or require IFRS for domestic listed companies, although approximately 90 countries. Korea, Canada and Mexico have also adopted this style.
What are the major differences between IFRS and U.S. GAAP?
The biggest difference when it comes to U.S. GAAP and IFRS is that IFRS provides much less overall detail. Its guidance regarding revenue recognition, for example, is significantly less extensive than U.S. GAAP. IFRS also contains relatively little industry-specific instructions. (IFRS.com) But because of longstanding convergence projects between the IASB and the FASB, the extent of the specific differences between IFRS and GAAP has been shrinking. There are big differences still remaining though, for example:
- IFRS does not permit last in, first out (LIFO)
- IFRS uses a single- step method for impairment write- downs rather than the two step method used in U.S.’s GAAP, making write downs more likely.
- IFRS does not permit debt for which a covenant violation has occurred to be classified as non- current unless a lender waiver is obtained before the balance sheet date.
What differences, if any, affect the reporting of?
- Inventory
- Long term assets
- Revenue
US GAAP | IFRS | |
Costing method | LIFO is an acceptable method. Consistent cost formula for all inventories similar in nature is not explicitly required | LIFO is prohibited. Same cost formula must be applied to all inventories similar in nature or use to the entity. |
Measurement | Inventory is carried at the lower of cost or market. Market is defined as current replacement cost, but not greater than net realizable value (estimated selling price less reasonable costs of completion and sale) and not less than net realizable value reduced by a normal sales margin. | Inventory is carried at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price less the estimated costs of completion and the estimated costs necessary to make the sale |
Reversal inventory write-downs | Any write-down of inventory to the lower of cost or market creates a new cost basis that subsequently cannot be reversed. | Previously recognized impairment losses are reversed up to the amount of the original impairment loss when the reasons for the impairment no longer exist |
Permanent inventory | Permanent markdowns do not affect the gross margins used in applying the RIM. Rather, such markdowns reduce the carrying cost of inventory to net realizable value, less an allowance for an approximately normal profit margin, which may be less than both original cost and net realizable value. | Permanent markdowns affect the average gross margin used in applying the RIM. Reduction of the carrying cost of inventory to below the lower of cost or net realizable value is not allowed. |
Chart: www. Ey.com -US GAAP versus IFRS The basics (textbook)