Question

The consolidation of financial statements for entities with subsidiaries in multiple countries presents the most challenging difference between IFRS and US GAAP. It would make the most sense for an expanding global economy, that each country agrees upon one way of processing and presenting financial data. This migration may eventually happen, but will most certainly take some time and be quite costly (Forgeas, 2008).

IFRS and US GAAP differ in determining how financial statements are consolidated on the basis of the controlling interest (FASB.org, 2003). To prepare financial statements in the US, a few things need to happen. The dollar amounts must be converted from the foreign currency to the US dollar provided that the parent company is US based. Each foreign subsidiary must keep two sets of books. One is based on US GAAP and the other is based on the accounting policies of their own country (Doupnik, Hoyle & Schaefer (2017).

These differences impact financial reporting in the following ways. Finance and operations departments need to update processes and procedures to follow changes in the accounting framework. Contracts will also be written differently. Specifically, IFRS 10 redefines the principle of control to serve as a basis for consolidation (Ben-Shahar, Sulganik & Tsang, 2016). It is important for shareholders and creditors to have accurate and standardized financial statements in order to make informed decisions.

Required:

Discuss whether you agree or disagree with the impact they discussed and why

Answer 1

Hi, US GAAP and IFRS differs in many ways and in consolidation as well.

As per IFRS, Consolidation of Parent must be done and must include subsidiary account irrespective of fact whether it is domestic or foreign or nature of business.

In case of consolidation in US Gaap step by step consolidation is done with the parent entity/one who controls whereas in case of IFRS both methods are available i.e. Step by Step by US GAAP and direct method in which currency of subsidiary is translated in functional currency of Parent company and the difference of currency impacts the consolidated books.

Stakeholders and investors must be able to understand the standalone financials and consolidated accounts to interpret the performance of company as the amount of fraud can be material enough to influence the decision of investors and company's going concern can be questioned too.