Alibaba Group Initial Public Offering: A Case Study of Financial Reporting Issue

Question

Alibaba Group Initial Public Offering: A Case Study of
Financial Reporting Issues
Qing L. Burke
Tim V. Eaton
Miami University

Q3. As a U.S.-listed foreign company, which must file financial reports with the SEC, Alibaba Group had the choice
between U.S. GAAP and IFRS. Although its subsidiaries had once prepared financial statements under IFRS, Alibaba
Group decided to prepare its financial statements under U.S. GAAP.
a. What are the pros and cons for Alibaba Group preparing its financial statements in accordance with U.S. GAAP
instead of IFRS?
b. Does the adoption of high-quality accounting standards such as U.S. GAAP or IFRS ensure high-quality financial
reporting by companies on a global scale? Why or why not?

Explanation / Answer

a) Pros

GAAP guidelines help businesses maintain consistency in their presentation of financial information, reduce the risk of misrepresentation and avoid fraud.

Adhering to GAAP guidelines we can implement proper controls and safeguards.

Complying with GAAP guidelines gives assurance to anyone interested in your company that your financial statements were prepared using standard guidelines.

cons

US GAAP are not compatible with IFRS, GAAP treats several major accounting issues involving inventory valuation, revenue recognition and financial instruments differently than the IFRS

For  treatment of derivatives and securitizations, GAAP provides specific rules instead of guiding principles.

Under GAAP, assets are reported using their historical cost, or initial acquisition cost. However, fair value may be a more accurate representation of an asset’s value.

b) The main objective of IFRS development is harmonization in financial statements reporting.

Some additional objectives are:

for  global financial reporting infrastructure, generate sound business sense among the beneficiaries, to generate the dimensions of fair presentation of financial statement, to maintain higher transparency of financial statement and mobility of capital.

Some benfit of IFRS as as follow :

it significantly improves the comparability of entities and provide more consistent financial information

it eliminates barriers to cross border trading in securities, by ensuring that financial statements are more transparent

are accepted as a financial reporting framework for companies seeking admission to almost all of the world’s stock exchanges

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