Financial reporting ppt

1. 
GAAP & IFRS

2. Various users
need financial
information
The accounting profession has
attempted to develop a set of
standards that are generally
accepted and universally
practiced.
Financial Statements
Balance Sheet
Income Statement
Statement of Stockholders’ Equity
Statement of Cash Flows
Note Disclosure
Generally Accepted
Accounting Principles
(GAAP)
The Need To Develop Standards

3. Two sets of standards accepted for international use:
 U.S. GAAP, issued by the FASB.
 International Financial Reporting Standards (IFRS),
issued by the IASB.
International Accounting Standards

4. Parties Involved in Standard Setting
Four organizations:
•
Securities and Exchange Commission (SEC)
•
American Institute of Certified Public
Accountants (AICPA)
•
Financial Accounting Standards Board (FASB)
•
Government Accounting Standards Board (GASB)

5. GAAP in a Political Environment
GAAP is as
much a product
of political
action as they
are of careful
logic or
empirical
findings.
LO 7 Describe the impact of user groups on the rule-making process.
Illustration 1-6
User Groups that
Influence the Formulation
of Accounting Standards

6.  International standards are referred to as
International Financial Reporting Standards
(IFRS), developed by the International
Accounting Standards Board (IASB). Recent
events in the global capital markets have
underscored the importance of financial
disclosure and transparency not only in the
United States but in markets around the world.
RELEVANT FACTS

7.  U.S standards, referred to as generally accepted accounting
principles (GAAP), are developed by the Financial Accounting
Standards Board (FASB). The fact that there are differences
between what is in this textbook (which is based on U.S. standards)
and IFRS should not be surprising because the FASB and IASB have
responded to different user needs. In some countries, the primary
users of financial statements are private investors; in others, the
primary users are tax authorities or central government planners. It
appears that the United States and the international standard-
setting environment are primarily driven by meeting the needs of
investors and creditors

8.  IFRS tends to be simpler in its accounting and
disclosure requirements; some people say more
“principles-based.” GAAP is more detailed; some
people say more “rules-based.” This difference in
approach has resulted in a debate about the merits of
“principles-based” versus “rules-based” standards.
 The SEC allows foreign companies that trade shares
in U.S. markets to file their IFRS financial statements
without reconciliation to GAAP.
RELEVANT FACTS

9. RELEVANT FACTS
Similarities
In 2010, the IASB and FASB completed the
first phase of a jointly created conceptual
framework. In this first phase, they agreed
on the objective of financial reporting and a
common set of desired qualitative
characteristics.

10.  The existing conceptual frameworks
underlying GAAP and IFRS are very similar.
 The converged framework should be a
single document, unlike the two conceptual
frameworks that presently exist; it is unlikely
that the basic structure related to the
concepts will change.

11.  Both GAAP and IFRS require companies to
indicate the amount of net income attributable
to no controlling interest.
 Both GAAP and IFRS follow the same presentation
guidelines for discontinued operations, but IFRS
defines a discontinued operation more narrowly. Both
standard-setters have indicated a willingness to
develop a similar definition to be used in the joint
project on financial statement presentation.
Similarities
-
RELEVANT FACTS

12. Both GAAP and IFRS have items that are
recognized in equity as part of
comprehensive income but do not affect
net income. Both GAAP and IFRS allow a
one statement or two statement
approach to preparing the statement of
comprehensive income.

13.  Presentation of the income statement under
GAAP follows either a single-step or multiple-
step format. IFRS does not mention a single-
step or multiple-step approach. In addition,
under GAAP, companies must report an item
as extraordinary if it is unusual in nature and
infrequent in occurrence. Extraordinary items
are prohibited under IFRS.
Differences
-
RELEVANT FACTS

14. Under IFRS, companies must classify
expenses by either nature or function. GAAP
does not have that requirement, but the SEC
requires a functional presentation.
IFRS identifies certain minimum items that
should be presented on the income statement.
GAAP has no minimum information
requirements. However, the SEC rules have
more rigorous presentation requirements.

15. IFRS does not define key measures like
income from operations. SEC regulations
define many key measures and provide
requirements and limitations on
companies reporting non-GAAP/IFRS
information.
RELEVANT FACTS - Differences

16. Under IFRS, revaluation of property, plant,
and equipment, and intangible assets is
permitted and is reported as other
comprehensive income. The effect of this
difference is that application of IFRS results in
more transactions affecting equity but not net
income.

17. The IASB and FASB are working on a project that would
rework the structure of financial statements. One stage of
this project will address the issue of how to classify various
items in the income statement. A main goal of this new
approach is to provide information that better represents
how businesses are run. The FASB and IASB have issued
a proposal to require comprehensive income be reported in
a combined statement of comprehensive income. This
approach draws attention away from just one number—net
income.
ON THE HORIZON

18. IFRS Convergence and
Adoption: Challenges
and Opportunities