Question

Company: Royal Dutch Shell

1. Describe broadly the world market shares in this industry. Is this industry an "IFRS dominant" industry or do most major companies use U.S. GAAP or other GAAPs?

2. In light of your answer to the previous question, do you think that a U.S. company in this industry will achieve significant comparability of its financial statements if it switches to IFRS?

Answer 1

Answer1.

A imarket iis ia iplace iwhere itwo iparties ican igather ito ifacilitate ithe iexchange iof igoods iand iservices. iThe iparties iinvolved iare iusually ibuyers iand isellers. iThe imarket imay ibe iphysical ilike ia iretail ioutlet, iwhere ipeople imeet iface-to-face, ior ivirtual ilike ian ionline imarket, iwhere ithere iis ino idirect iphysical icontact ibetween ibuyers iand isellers.

The iterm imarket ialso itakes ion iother iforms. iFor iinstance, iit imay irefer ito ithe iplace iwhere isecurities iare itraded ithe isecurities imarket. iAlternatively, ithe iterm imay ialso ibe iused ito idescribe ia icollection iof ipeople iwho iwish ito ibuy ia ispecific iproduct ior iservice isuch ias ithe iBrooklyn ihousing imarket ior ias ibroad ias ithe iglobal idiamond imarket.

1. A imarket iis ia iplace iwhere ibuyers iand isellers ican imeet ito ifacilitate ithe iexchange ior itransaction iof igoods iand iservices.

2. Markets ican ibe iphysical ilike ia iretail ioutlet, ior ivirtual ilike ian ie-retailer. iOther iexamples iinclude ithe iblack imarket, iauction imarkets, iand ifinancial imarkets.

3. Markets iestablish ithe iprices iof igoods iand iservices ithat iare idetermined iby isupply iand idemand.

Markets iare iarenas iin iwhich ibuyers iand isellers ican igather iand iinteract. iIn igeneral, ionly itwo iparties iare ineeded ito imake ia itrade, iat iminimum ia ithird iparty iis ineeded ito iintroduce icompetition iand ibring ibalance ito ithe imarket. iAs isuch, ia imarket iin ia istate iof iperfect icompetition, iamong iother ithings, iis inecessarily icharacterized iby ia ihigh inumber iof iactive ibuyers iand isellers.

The imarket iestablishes ithe iprices ifor igoods iand iother iservices. iThese irates iare idetermined iby isupply iand idemand. iSupply iis icreated iby ithe isellers, iwhile idemand iis igenerated iby ibuyers. iMarkets itry ito ifind isome ibalance iin iprice iwhen isupply iand idemand iare ithemselves iin ibalance. iBut ithat ibalance ican iin iitself ibe idisrupted iby ifactors iother ithan iprice iincluding iincomes, iexpectations, itechnology, ithe icost iof iproduction, iand ithe inumber iof ibuyers iand isellers iin ithe imarket.

The istandards ithat igovern ifinancial ireporting iand iaccounting ivary ifrom icountry ito icountry. iIn ithe iUnited iStates, ifinancial ireporting ipractices iare iset iforth iby ithe iFinancial iAccounting iStandards iBoard i(FASB) iand iorganized iwithin ithe iframework iof ithe igenerally iaccepted iaccounting iprinciples i(GAAP).Generally iaccepted iaccounting iprinciples irefer ito ia icommon iset iof iaccepted iaccounting iprinciples, istandards, iand iprocedures ithat icompanies iand itheir iaccountants imust ifollow iwhen ithey icompile itheir ifinancial istatements.

International iFinancial iReporting iStandards i(IFRS) iare ia iset iof iinternational iaccounting istandards, iwhich istate ihow iparticular itypes iof itransactions iand iother ievents ishould ibe ireported iin ifinancial istatements. iIFRS iare iissued iby ithe iInternational iAccounting iStandards iBoard i(IASB), iand ithey ispecify iexactly ihow iaccountants imust imaintain iand ireport itheir iaccounts. iIFRS iwas iestablished iin iorder ito ihave ia icommon iaccounting ilanguage, iso ibusiness iand iaccounts ican ibe iunderstood ifrom icompany ito icompany iand icountry ito icountry.

GAAP

If ia icompany idistributes iits ifinancial istatements ioutside iof ithe icompany, iGAAP imust ibe ifollowed. iIf ia icorporation's istock iis ipublicly itraded, ifinancial istatements imust ialso iadhere ito irules iestablished iby ithe iU.S. iSecurities iand iExchange iCommission.

GAAP iaddresses isuch ithings ias irevenue irecognition, ibalance isheet, iitem iclassification, iand ioutstanding ishare imeasurements. iIf ia ifinancial istatement iis inot iprepared iusing iGAAP, iinvestors ishould ibe icautious. iAlso, isome icompanies imay iuse iboth iGAAP- iand inon-GAAP-compliant imeasures iwhen ireporting ifinancial iresults. iGAAP iregulations irequire ithat inon-GAAP imeasures iare iidentified iin ifinancial istatements iand iother ipublic idisclosures, isuch ias ipress ireleases.

IFRS

The ipoint iof iIFRS iis ito imaintain istability iand itransparency ithroughout ithe ifinancial iworld. iIFRS ienables ithe iability ito isee iexactly iwhat ihas ibeen ihappening iwith ia icompany iand iallows ibusinesses iand iindividual iinvestors ito imake ieducated ifinancial idecisions.

IFRS iis istandard iin ithe iEuropean iUnion i(EU) iand imany icountries iin iAsia iand iSouth iAmerica, ibut inot iin ithe iUnited iStates.

 iThe iSecurities iand iExchange iCommission iwon't iswitch ito iInternational iFinancial iReporting iStandards iin ithe inear iterm ibut iwill icontinue ireviewing ia iproposal ito iallow iIFRS iinformation ito isupplement iU.S. ifinancial ifilings. iCountries ithat ibenefit ithe imost ifrom ithe istandards iare ithose ithat iconduct ia ilot iof iinternational ibusiness iand iinvesting.

1. GAAP iis ia icommon iset iof iaccepted iaccounting iprinciples, istandards, iand iprocedures ithat icompanies iand itheir iaccountants imust ifollow iwhen ithey icompile itheir ifinancial istatements. i

2. IFRS iis ia iset iof iinternational iaccounting istandards, iwhich istate ihow iparticular itypes iof itransactions iand iother ievents ishould ibe ireported iin ifinancial istatements.

3. Some iaccountants iconsider imethodology ito ibe ithe iprimary idifference ibetween ithe itwo isystems; iGAAP iis irules-based iand iIFRS iis iprinciples-based.

The iprimary idifference ibetween ithe itwo isystems iis ithat iGAAP iis irules-based iand iIFRS iis iprinciples-based. iThis idisconnects imanifests iitself iin ispecific idetails iand iinterpretations. iBasically, iIFRS iguidelines iprovide imuch iless ioverall idetail ithan iGAAP. iConsequently, ithe itheoretical iframework iand iprinciples iof ithe iIFRS ileave imore iroom ifor iinterpretation iand imay ioften irequire ilengthy idisclosures ion ifinancial istatements. iOn ithe iother ihand, ithe iconsistent iand iintuitive iprinciples iof iIFRS iare imore ilogically isound iand imay ipossibly ibetter irepresent ithe ieconomics iof ibusiness itransactions.

Perhaps ithe imost inotable ispecific idifference ibetween iGAAP iand iIFRS iinvolves itheir itreatment iof iinventory. iIFRS irules iban ithe iuse iof ilast-in, ifirst-out i(LIFO) iinventory iaccounting imethods. iGAAP irules iallow ifor iLIFO. iBoth isystems iallow ifor ithe ifirst-in, ifirst-out imethod i(FIFO) iand ithe iweighted iaverage-cost imethod. iGAAP idoes inot iallow ifor iinventory ireversals, iwhile iIFRS ipermits ithem iunder icertain iconditions.

Globalization, ithe iSarbanes-Oxley iAct i(SOX), ithe iSecurities iand iExchange iCommission's i(SEC) iadoption iof iinternational istandards iand ithe ieconomic iand ifinancial imeltdown iof ithe iGreat iRecession iin irecent iyears ihave ibeen iexerting ipressure ion ia inumber iof icountries, iincluding ithe iUnited iStates, ito ieliminate ithe igap ibetween ithe iInternational iFinancial iReporting iStandards i(IFRS) iand ithe iU.S. igenerally iaccepted iaccounting iprinciples i(GAAP).

Such iinitiatives ihave iconsequences ion ithe iworld iof iaccounting idiversity, iand ithe istandards iconvergence iof iGAAP ialong iwith ithe iIFRS ilargely iimpacts icorporate imanagement, iinvestors, istock imarkets, iaccounting iprofessionals, iand iaccounting istandards isetters. iAdditionally, ithe iconvergence iof iaccounting istandards iis ichanging ithe iattitudes iof iCPAs iand iCFOs itoward ithe iharmonization iof iinternational iaccounting, iaffecting ithe iquality iof ithe iinternational iaccounting istandards iand ithe iefforts imade itoward ithe igoal iof iconvergence iof iGAAP iand iIFRS istandards.

1. One imajor idifference ibetween iGAAP iand iIFRS iis itheir imethodology, iwith iGAAP ibeing irules-based iand ithe ilatter ibeing iprinciples-based.

2. This idifference ihas iposed ia ichallenge iin iareas isuch ias iconsolidation, ithe iincome istatement, iinventory, ithe iearnings-per-share i(EPS) icalculation, iand idevelopment icosts.

3. IFRS ifavors ia icontrol imodel iwhereas ithe iU.S. iGAAP iprefers ia irisk-and-reward imodel.

4. Because ithe iGAAP ihas ibeen iused ifor iso ilong iby iaccounting iprofessionals, iit icould ibe idifficult ito itry ianother iformat, iespecially iwhen ithe ichange icould irequire ilearning ia iwhole inew isystem iof ifinancial iaccounting. i

Answer2.

International iFinancial iReporting iStandards i(IFRS) iset icommon irules iso ithat ifinancial istatements ican ibe iconsistent, itransparent iand icomparable iaround ithe iworld. iIFRS iare iissued iby ithe iInternational iAccounting iStandards iBoard i(IASB). iThey ispecify ihow icompanies imust imaintain iand ireport itheir iaccounts, idefining itypes iof itransactions iand iother ievents iwith ifinancial iimpact. iIFRS iwere iestablished ito icreate ia icommon iaccounting ilanguage, iso ithat ibusinesses iand itheir ifinancial istatements ican ibe iconsistent iand ireliable ifrom icompany ito icompany iand icountry ito icountry.

IFRS iare idesigned ito ibring iconsistency ito iaccounting ilanguage, ipractices iand istatements, iand ito ihelp ibusinesses iand iinvestors imake ieducated ifinancial ianalyses iand idecisions. iThe iIFRS iFoundation isets ithe istandards ito i“bring itransparency, iaccountability iand iefficiency ito ifinancial imarkets iaround ithe iworld… ifostering itrust, igrowth iand ilong-term ifinancial istability iin ithe iglobal ieconomy.” iCompanies ibenefit ifrom ithe iIFRS ibecause iinvestors iare imore ilikely ito iput imoney iinto ia icompany iif ithe icompany's ibusiness ipractices iare itransparent.

1. IFRS iwere iestablished ito icreate ia icommon iaccounting ilanguage, iso ibusiness iand iaccounts ican ibe iunderstood ifrom icompany ito icompany iand icountry ito icountry.

2. Both icompanies iand iinvestors ibenefit ifrom iIFRS ibecause ipeople iare imore iconfident iinvesting iin ia icompany iif iits ibusiness ipractices iare itransparent iand ireliable.

3. The iIFRS iare iset iby ithe iInternational iAccounting iStandards iBoard, ian iindependent ibody iof ithe iIFRS iFoundation, iwhich iprovide iupdates, iinsights iand iguidance ion ithe istandards.

The iU.S. iSecurities iand iExchange iCommission i(SEC) ihas isaid iit iwon't iswitch ito iInternational iFinancial iReporting iStandards, ibut iwill icontinue ireviewing ia iproposal ito iallow iIFRS iinformation ito isupplement iU.S. ifinancial ifilings. iGAAP ihas ibeen icalled i"the igold istandard" iof iaccounting. iHowever, isome iargue ithat iglobal iadoption iof iIFRS iwould isave imoney ion iduplicative iaccounting iwork, iand ithe icosts iof ianalyzing iand icomparing icompanies iinternationally.

1. Statement iof iFinancial iPosition: iThis iis ialso iknown ias ia ibalance isheet. iIFRS iinfluences ithe iways iin iwhich ithe icomponents iof ia ibalance isheet iare ireported.

2. Statement iof iComprehensive iIncome: iThis ican itake ithe iform iof ione istatement, ior iit ican ibe iseparated iinto ia iprofit iand iloss istatement iand ia istatement iof iother iincome, iincluding iproperty iand iequipment.

3. Statement iof iChanges iin iEquity: iAlso iknown ias ia istatement iof iretained iearnings, ithis idocuments ithe icompany's ichange iin iearnings ior iprofit ifor ithe igiven ifinancial iperiod.

4. Statement iof iCash iFlow: iThis ireport isummarizes ithe icompany's ifinancial itransactions iin ithe igiven iperiod, iseparating icash iflow iinto iOperations, iInv