Convergence Of IFRS | EssayIvy.com

Running head: CONVERGENCE OF IFRS 1

Convergence of IFRS

Student’s name

Institution

CONVERGENCE OF IFRS 2

Introduction

The International Financial Reporting Standards (IFRS) is a standard for financial

reporting that was issued by the International Accounting Standards Board (IASB). A firm must

be in compliance with the requirements of each applicable standard and interpretation under the

IFRS umbrella for it to be declared compliant with IFRSs (IAS Plus, 2017). IFRS consists of 13

major standards that provide the firms with the information they need to successfully comply

with the IASB requirements. The standards include first-time adoption, share-based payments,

business combinations, insurance contracts, non-current assets, mineral assets and their

exploration and valuation, disclosures of financial instruments, operating segments, financial

statements, joint agreements, interests in diverse entities, and measurements at fair value (IAS

Plus, 2017). It also includes a list of 41 International Accounting Standards (IAS) (IAS Plus,

2017). This essay analyzes the issue of convergence between IFRS and the U.S. Generally

Accepted Accounting Principles (GAAP) with a consideration of the case of Apple Inc.

Concerns for the Company

The adoption of IFRS will introduce changes in financial reporting that the management

of the organization needs to be aware of. One of the major concerns that the movement towards

IFRS presents is the implementation of the non-controlling interest rate with its valuation at fair

value, accompanied by either an exclusion or an inclusion of the goodwill. The second point of

concern is the inclusion of the exercisable shares with the adoption of IFRS which would force

the company to become a consolidated entity. The third point of concern is IFRS’s postulation

that the assets that the company is to obtain would not be contingent, thereby increasing the

quantities of the company’s assets and, possibly, inventory. Therefore, the company needs to

institute measures to adapt to these imminent changes.

CONVERGENCE OF IFRS 3

Differences in Income Statement and Balance Sheet

There are significant differences between the U.S. GAAP and IFRS in terms of the

income statements and the balance sheets. The list below presents the major differences between

the two standards.

I. The U.S. GAAP recommends the use of a specific format for the income statement, with

the options available being the single-step and the multi-step formats. IFRS, on the other

hand, does not provide a specific format for the income statement. However, IFRS

postulates that the items that must be included in the income statement are the revenue,

finance cost, post-tax results, tax expenses, post-tax gains or losses, and the profits or

losses for the financial period (IAS Plus, 2017).

II. IFRS requires no specific format for the balance sheet whereas GAAP requires the

inclusion of assets, liabilities, and equity in a descending order of liquidity (Epstein,

2018). However, IFRS requires the compliant firms to classify the current and non-

current assets and liabilities separately on the balance sheet. The GAAP balance sheet

format, however, seems to be globally acceptable (Epstein, 2018).

III. The IFRS prohibits the inclusion of extraordinary items in the income statement while the

GAAP allows its inclusion.

IV. IFRS requires the disclosure of expenses and incomes that are considered to be

exceptional by nature, size, and incidence. The GAAP, on the other hand, does not use

the term “exceptional items.”

V. Finally, under U.S. GAAP, when making contributions, the entity should place the

related tax under the net benefit cost. Under IFRS, on the other hand, the taxes are

included as part of the return-on-asset.

CONVERGENCE OF IFRS 4

Impacts of Convergence on Inventory Account

The IAS 2 standard requires inventories to be “stated at the lower of cost and net

realizable value (NRV) (IAS Plus, 2017). From a review of Apple Inc.’s financial statements, it

adopts the U.S. GAAP standard, and a convergence will see it having to report the costs of

purchase, costs of conversion, and other costs that it incurs to transport the inventories to their

current location. The costs then will have to exclude abnormal wastes, storage costs,

administrative overheads, foreign exchange differences involving the purchase of inventories

using foreign currency, and costs of interests (IAS Plus, 2017). Most of these items are currently

included in Apple Inc.’s financial statements and will have to be excluded under convergence

(IAS Plus, 2017).

Financial Instruments

Under IFRS, the financial instruments include cash, deposits for demand and time,

commercial paper, accounts receivable and payable, loans receivable and payable, notes

receivable and payable, debt and equity securities, asset-backed securities, and derivatives (IAS

Plus, 2017). Both the IFRS and GAAP require the classification of the financial instruments into

various categories, the recognition of derivatives on the balance sheet, and detailed disclosures in

the notes provided for the financial statements (EY, 2013). Some of the differences between the

two standards include IFRS’s splitting of hybrid instruments into debt and equity components,

IFR’s prohibition of the shortcut method for hedge effectiveness, and the prohibition of the

inclusion of the option’s time value under IFRS (EY, 2013). The GAAP has opposite provisions

on these three fronts.

Impacts of Conversion Process: IAS 32, IAS 39, and IFRS 7

CONVERGENCE OF IFRS 5

Apple Inc. currently uses GAAP standards. Therefore, one of the impacts of conversion

that it will have will be in complying with IFRS 7 as it will have to disclose the information

about the significance of financial instruments and the risks accompanying the instruments. For

instance, it will have to include the cash under the financial instruments. The second impact will

be in its presentation of the financial instruments, where it will have to classify them under

financial assets, financial liabilities, and equity instruments as contrasted to the current

presentation (IAS Plus, 2017).

Conclusion

Apple Inc. currently adopts the U.S. GAAP financial reporting standard. For instance, a

review of its financial statement reveals that it included intangible assets – such as research and

development – under the operating expenses. The convergence, therefore, is likely to introduce

tremendous changes to its financial reporting practices. Some of the concerns include its need to

become a consolidated entity, the changes in the management and reporting of inventory, the

differences in the reporting of financial instruments, and the income statement and balance sheet

changes that it will have to implement.

CONVERGENCE OF IFRS 6

References

Epstein, L. (2018). Key Financial Statement Differences between GAAP and the IFRS. Retrieved

from Dummies.com: http://www.dummies.com/business/accounting/key-financial-

statement-differences-between-gaap-and-the-ifrs/

EY. (2013). US GAAP versus IFRS. London, UK: Ernest & Young LLP.

IAS Plus. (2017). An Overview of International Financial Reporting Standards. Retrieved from

https://www.iasplus.com/en/standards/misc/standard57

Place new order. It's free, fast and safe

Paper type

Deadline

Page count

550 words

Total price: $ 15.00

Our customers say

Jeff Curtis

USA, Student

"I'm fully satisfied with the essay I've just received. When I read it, I felt like it was exactly what I wanted to say, but couldn’t find the necessary words. Thank you!"

Ian McGregor

UK, Student

"I don’t know what I would do without your assistance! With your help, I met my deadline just in time and the work was very professional. I will be back in several days with another assignment!"

Shannon Williams

Canada, Student

"It was the perfect experience! I enjoyed working with my writer, he delivered my work on time and followed all the guidelines about the referencing and contents."