Select the company ( Walmart, Target, Kroger, Sears or Amazon) that you will use

Question

Select the company ( Walmart, Target, Kroger, Sears or Amazon) that you will use to build your portfolio Explain the steps that would be needed for your selected portfolio company to transition from GAAP to IFRS. For example, what would this transition entail? What would your chosen company need to do? Explain how a financial statement would differ under IFRS as opposed to GAAP. i. How is a financial statement under IFRS different from GAAP? How is it the same? ii. What would the statements for your chosen company look like? Support your argument with at least three peer-reviewed sources cited in APA format.

Explanation / Answer

The transition from GAAP to IFRS

Building business efficiencies and greater competitiveness for North American companies. Regulatory authorities are on track to make the International Financial Reporting Standards (IFRS) a requirement for all publicly-traded companies in the US, Canada, and Mexico over the next few years. For public companies in these countries, the transition to IFRS will be the most significant regulatory change in many years and one with potential to directly impact overall competitive position.

However, the specific implications for the companies who must transform their financial accounting from the applicable Generally Accepted Accounting Principles (GAAP) to IFRS are less clear. Will the adoption of IFRS simply mean companies must undergo a costly technical conversion of their internal accounting processes? Or will the change represent a more fundamental business transformation that leads to greater efficiency and a more competitive position, both domestically and internationally. Or will it be a combination of the two?

How is a financial statement under IFRS different from GAAP:

The key financial statements required by both the IFRS and GAAP are similar, but the ways in which the numbers are calculated sometimes differ. Also, IFRS standards require only two years of data for the income statements, changes in equity, and cash flow statements, whereas GAAP requires three years of data for SEC registrants.

BALANCE SHEET

GAAP standards require assets, liabilities, and equity to be presented in decreasing order of liquidity. The balance sheet is generally presented with total assets equaling total liabilities and shareholders’ equity.

IFRS guidelines don’t require any specific format, but entities are expected to present current and noncurrent assets and current and noncurrent liabilities as separate classifications on their balance sheets, except when liquidity presentation provides more relevant and reliable information.

INCOME STATEMENT

The IFRS guidelines don’t prescribe a standard format, but GAAP does require the use of a single-step or multistep format. The IFRS prohibits the use of the category “extraordinary items,” but GAAP allows an extraordinary line item on the income statement.

Extraordinary items are defined as being both infrequent and unusual. For example, when goodwill is shown as a negative item, it’s listed as an extraordinary item on the income statement.

STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

This statement is similar in both the IFRS and GAAP standards. This statement isn’t required as a separate document under GAAP rules. A company can choose to present the information about changes in shareholders’ equity as part of the notes to the financial statements.

CASH FLOW STATEMENT

In both IFRS and GAAP rules, this statement is presented with similar headings. The IFRS gives limited guidance on what information the statement must include.

GAAP gives more specific guidance for which categories must be included in each section of the statement. Statements can be prepared using the direct or indirect method under either the IFRS or GAAP.

The IFRS framework defines an asset as a resource from which future economic benefit will flow to the company.

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Peer-reviewed sources cited in APA format.

The APA citation format requires parenthetical citations within the text rather than endnotes or footnotes. Citations in the text provide brief information, usually the name of the author and the date of publication, to lead the reader to the source of information in the reference list at the end of the paper.

COMPARISON CHART:    Generally Accepted Accounting Principles International Financial Reporting Standards Introduction Standard guidelines and structure for typical financial accounting. Universal financial reporting method that allows international businesses to understand each other and work together. Used in United States Over 110 countries, including those in the European Union Performance elements Revenue or expenses, assets or liabilities, gains, losses, comprehensive income Revenue or expenses, assets or liabilities Required documents in financial statements Balance sheet, income statement, statement of comprehensive income, changes in equity, cash flow statement, footnotes Balance sheet, income statement, changes in equity, cash flow statement, footnotes Inventory Estimates Last-in, first-out; first-in, first-out; or weighted-average cost First-in, first-out or weighted-average cost Inventory Reversal Prohibited Permitted under certain criteria Purpose of the framework US GAAP (or FASB) framework has no provision that expressly requires management to consider the framework in the absence of a standard or interpretation for an issue. Under IFRS, company management is expressly required to consider the framework if there is no standard or interpretation for an issue. Objectives of financial statements In general, broad focus to provide relevant info to a wide range of stakeholders. GAAP provides separate objectives for business and non-business entities. In general, broad focus to provide relevant info to a wide range of stakeholders. IFRS provides the same set of objectives for business and non-business entities. Underlying assumptions The "going concern" assumption is not well-developed in the US GAAP framework. IFRS gives prominence to underlying assumptions such as accrual and going concern. Qualitative characteristics Relevance, reliability, comparability and understandability. GAAP establishes a hierarchy of these characteristics. Relevance and reliability are primary qualities. Comparability is secondary. Understandability is treated as a user-specific quality. Relevance, reliability, comparability and understandability. The IASB framework (IFRS) states that its decision cannot be based upon specific circumstances of individual users. Definition of an asset The US GAAP framework defines an asset as a future economic benefit.

The IFRS framework defines an asset as a resource from which future economic benefit will flow to the company.

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