please give me question 9 answers orate Financial Reports Across Borders 5-179 a
ID: 2399093 • Letter: P
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please give me question 9 answers
orate Financial Reports Across Borders 5-179 annual report from a foreign company that interests you and review ining its significant accounting policies. Discuss the main financial would be concerned about in comparing this company to a Ob note conta domestic company in the same industry re considerable differences in the timeliness and reliability of financial data across countries? How are these likely to affect financial statement 7. Are there sis of companies across countries? ope with accounting principles differences in several different ways. proach(es) Discuss at least two of these coping mechanisms and explain which ap you favor, and why Non-U.S. companies listed on U.S. stock exchanges are not required to base their financial statements on U.S. GAAP. However, some companies continue to provide reconciliation disclosures that quantify any material differences between their reported net income and what their net income would be under U.S. GAAP. What are the most frequently disclosed types of material differences? Is U.S. GAAP net income usually larger or smaller than net income as reported under home-country GAAP? Why? Other companies base their financial statements on IFRS. What are some of the significant differences likely to be? 10. Explain how environmental differences can influence ratio computations in Japan and Korea. How do these environmental differences complicate cross-border analysis? I. There are certain rules of thumb that are considered appropriate for financial ratios in a country. For example, current ratios of 2:1 and quick ratios of 1:1 are generally regarded as being desirable. Why might it be inappropriate to apply these rules of thumb when evaluating the liquidity of firms from other countries? EXERCISES rations and the need to tap capital providers in several countries I rather than country-specificExplanation / Answer
1) Most frequently disclosed types of material differences
GAAP is focused on the practices of U.S. companies. The Financial Accounting Standards Board (FASB) issues GAAP. The international alternative to GAAP is the International Financial Reporting Standards (IFRS) set by the International Accounting Standards Board (IASB). The IASB and the FASB have been working on the convergence of IFRS and GAAP since 2002. Due to the progress achieved in this partnership, the SEC, in 2007, removed the requirement for non-U.S. companies registered in America to reconcile their financial reports with GAAP if their accounts already complied with IFRS. This was a big achievement, because prior to the ruling, non-U.S. companies trading on U.S. exchanges had to provide GAAP-compliant financial statements.
The most frequent type of material differences that still exist between both accounting rules include:
?2) Is US gaap income usually smaller or larger than net income reported under home country GAAP
Yes, though experts have their diversified different views, I would request you to refer below link which clearly depicts the clarity of the statement in details.
https://digitalcommons.pace.edu/honorscollege_theses/99/?utm_source=digitalcommons.pace.edu%2Fhonorscollege_theses%2F99&utm_medium=PDF&utm_campaign=PDFCoverPages
3 ) Significant differences between US GAAP and IFRS
1. Locally vs. Globally
As mentioned, the IFRS is a globally accepted standard for accounting, and is used in more than 110 countries. On the other hand, GAAP is exclusively used within the United States and has a different set of rules for accounting than most of the world. This can make it more complicated when doing business internationally.
2. Rules vs. Principles
A major difference between IFRS and GAAP accounting is the methodology used to assess the accounting process. GAAP focuses on research and is rule-based, whereas IFRS looks at the overall patterns and is based on principle.
With GAAP accounting, there’s little room for exceptions or interpretation, as all transactions must abide by a specific set of rules. With a principle-based accounting method, such as the IFRS, there’s potential for different interpretations of the same tax-related situations.
3. Inventory Methods
Under GAAP, a company is allowed to use the Last In, First Out (LIFO) method for inventory estimates. However, under IFRS, the LIFO method for inventory is not allowed. The Last In, First Out valuation for inventory does not reflect an accurate flow of inventory in most cases, and thus results in reports of unusually low income levels.
4. Inventory Reversal
In addition to having different methods for tracking inventory, IFRS and GAAP accounting also differ when it comes to inventory write-down reversals. GAAP specifies that if the market value of the asset increases, the amount of the write-down cannot be reversed. Under IFRS, however, in this same situation, the amount of the write-down can be reversed. In other words, GAAP is overly cautious of inventory reversal and does not reflect any positive changes in the marketplace.
5. Development Costs
A company’s development costs can be capitalized under IFRS, as long as certain criteria are met. This allows a business to leverage depreciation on fixed assets. With GAAP, development costs must be expensed the year they occur and are not allowed to be capitalized.
6. Intangible Assets
When it comes to intangible assets, such as research and development or advertising costs, IFRS accounting really shines as a principle-based method. It takes into account whether an asset will have a future economic benefit as a way of assessing the value. Intangible assets measured under GAAP are recognized at the fair market value and nothing more.
7. Income Statements
Under IFRS, extraordinary or unusual items are included in the income statement and not segregated. Meanwhile, under GAAP, they are separated and shown below the net income portion of the income statement.
8. Classification of Liabilities
The classification of debts under GAAP is split between current liabilities, where a company expects to settle a debt within 12 months, and noncurrent liabilities, which are debts that will not be repaid within 12 months. With IFRS, there is no differentiation made between the classification of liabilities, as all debts are considered noncurrent on the balance sheet.
9. Fixed Assets
When it comes to fixed assets, such as property, furniture and equipment, companies using GAAP accounting must value these assets using the cost model. The cost model takes into account the historical value of an asset minus any accumulated depreciation. IFRS allows a different model for fixed assets called the revaluation model, which is based on the fair value at the current date minus any accumulated depreciation and impairment losses.
10. Quality Characteristics
Finally, one of the main differentiating factors between IFRS and GAAP is the qualitative characteristics to how the accounting methods function. GAAP works within a hierarchy of characteristics, such as relevance, reliability, comparability and understandability, to make informed decisions based on user-specific circumstances. IFRS also works with the same characteristics, with the exception that decisions cannot be made on the specific circumstances of an individual.
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