At the current stage of the global economy, many countries realize that it is necessary to apply international financial reporting standards (IFRS) as the basis for accounting and reporting. It should be noted that companies around the globe are becoming more connected, and thus, the need for international financial standards for reporting key accounting data is increasing, and they are recognized as a methodological basis for the preparation of consolidated and separate financial statements (Gupta & Radhaswamy, 2021). In the United States, financial reporting practices are determined by the Financial Accounting Standards Board (FASB) and organized under generally accepted accounting principles, or US GAAP. The development and adoption of US GAAP are strongly influenced by the US Securities and Exchange Commission (SEC).
The main concerns for ACE Hardware Corp when moving from US GAAP to IFRS can be highlighted by comparing the two standards. It should be noted that US GAAP is mainly focused on practical application in various accounting situations, contains more recommendations for specific accounting issues, and leaves less room for interpretation (Gupta & Radhaswamy, 2021). A specialist preparing financial statements in accordance with IFRS can easily move on to preparing statements in accordance with US GAAP standards. The main reason is that there a wide range of similarities between GAAP and IFRS in regards to reporting and principles. Moreover, the reporting itself, prepared according to one standard, can, under certain conditions and necessary adjustments, be transformed into other formats.
There are both similarities and differences when preparing GAAP and IFRS accounting or financial statements. It is important to note that both IFRS and US GAAP focus on providing relevant information to a wide range of stakeholders when preparing financial statements (Gupta & Radhaswamy, 2021). However, the expected differences are manifested in the fact that IFRS provides the same set of objectives for both commercial and non-profit organizations, while US GAAP provides separate objectives for these organizations. In the case of an income statement, IFRS does not segregate between extraordinary items, whereas GAAP presents these components below the net income value. In the case of a balance sheet, IFRS starts with non-current assets, whereas GAAP begins with current assets, and the ordering is reversed in the former compared to the latter (Gupta & Radhaswamy, 2021). The list of differences:
- Extraordinary item segregation.
- Net income.
- Current assets.
- Non-current assets.
- Development costs.
- LIFO vs. FIFO.
The impact of convergence will directly affect the company’s inventory, where the current LIFO system of ACE Hardware Corp will no longer be used under IFRS, but GAAP allows the use of both LIFO and FIFO (CITE). In both IFRS and US GAAP, companies with one or more subsidiaries are required to present consolidated financial statements. The financial statement data in the complete forms of both IFRS and GAAP are homogenous (Gupta & Radhaswamy, 2021). However, US GAAP has specific requirements for the format and disclosure of information presented in each financial statement line item, while IFRS sets minimum disclosure requirements and does not prescribe specific formats.
In conclusion, both GAAP and IFRS have a number of overlapping similarities, but the fundamental difference is the fact that the latter is principle-based and the former is rule-based. Therefore, the interpretive frameworks are altered when switching between these two accounting standards, where income statement, balance sheet, and inventory recording structure becomes altered either in regards to ordering of items, inventory managing approaches, or asset listing.
Reference
Gupta, R. L., & Radhaswamy, M. (2021). Corporate accounting. Sultan Chand & Sons.