Question

• Explain the three accounting changes and correction of an error and the method used to disclose each one. • Explain four differences by account between U.S. GAAP and IFRS.

Answer 1

Some of differences between the two accounting frameworks are highlighted below:

Intangibles

The treatment of acquired intangible assets helps illustrate why IFRS is considered more "principles based." Acquired intangible assets under U.S. GAAP are recognized at fair value, while under IFRS, it is only recognized if the asset will have a future economic benefit and has measured reliability. Intangible assets are things like R&D and advertising costs.

InventoryCosts

Under IFRS, the last-in, first-out (LIFO) method for accounting for inventory costs is not allowed. Under U.S. GAAP, either LIFO or first-in, first-out(FIFO) inventory estimates can be used. The move to a single method of inventory costing could lead to enhanced comparability between countries, and remove the need for analysts to adjust LIFO inventories in their comparison analysis.

WriteDowns

Under IFRS, if inventory is written down, the write down can be reversed in future periods if specific criteria are met. Under U.S. GAAP, once inventory has been written down, any reversal is prohibited.

Themost interesting differences:

Impairments

The main difference between the two sets of standards is the method of measuring and

recording impairments. An impairment occurs when the fair value of an asset (its worth on the

open market) is less than its carrying value on a company’s books. The two most fundamental

differences between US GAAP and IFRS regarding impairments is the test to identify and

measure an impairment and the fact that IFRS permits impairment reversal.

IFRS allows assets to be written back up so that the value on a company’s books more

closely represents their market value .Under US GAAP, once an asset is

written down due to impairment, it can never be written back up.

Inventory — Under IFRS, LIFO cannot be used, but GAAP, companies have the choice between LIFO and FIFO. Almost 36% of the companies consider LIFO to be the appropriate method of valuation.

In case of convergence IFRS should be adopted because:

Forcompanies that do business overseas, or those with global aspirations, the use of converged IFRS represents an opportunity to speak the same financial language as their global counterparts. It will represent a substantial opportunity to seamlessly use and provide financial information around the world. For acquisition of capital, it makes it easier for everyone involved without having to use two sets of languages