|Compare and contrast
|Globalization International relations Multiculturalism Accounting
Multiculturalism and diversity add massive value to the global environment. Due to the presence of different perspectives on business and finances among individuals from various cultures, sharing the known ideas creates ground to make a suitable decision on topics. As such, the global environment ends up filled with productivity and quality services from individuals. Currently, there is an outgrowing discussion on moving from the US GAAP (Generally Accepted Accounting Principles) to IFRS (International Financial Reporting Standards). The US GAAP involves the accounting standards that the United States adopted in securities exchange required for use by accountants in every public company located in the state when compiling financial statements (VanderPal, 2014). IFRS are accounting standards/principles put in place by the International Accounting Standards Board (IASB) to help provide required data through global financial reporting. Also, the IFRS foundation helped the IASB to issue the IFRS accounting standards. In this paper, while delving deep on the value of multiculturalism and diversity in a global environment in association to companies shifting from using the US GAAP to using IFRS, there are similarities and differences between GAAP and IFRS. Information is also present on the advantages and disadvantages of adopting IFRS specific to the stockholder’s equity section of the balance sheet.
Similarities and Differences between GAAP and IFRS
There are many similarities and differences between GAAP and IFRS, identifying their potential in fostering the success of companies. As such, looking at similarities, first, both GAAP and IFRS have a similar structure that guides their functioning. The structures help both of them to identify, balance, and satisfy their accounting objectives, qualitative traits, and fundamentals. Secondly, to ensure there is balance in accounting within a company, both GAAP and IFRS use a balance sheet, a statement of cash flows, and an income statement. The balance sheet for IFRS and GAAP have their content specific to stockholders’ equity section concerning disclosing types of stock, issuing shares, the par values, and authorized shares (Edel Limus, 2014). As such, all parties involved with the finances of a company can easily track records to ensure that the profitability levels are increasing and to satisfy the set terms with stockholders. Thirdly, both GAAP and IRFS base their preparation of financial statements on an accrued basis since they recognize revenue when realized. In that, there is a recording of accounting earned income and acquired expenses in an organization. The primary differences between IFRS and GAAP are present in the statement of cash flows, the balance sheet, and in the revaluation of assets. Therefore, looking at the statement of cash flows, GAAP identifies that paid dividends require accounting in the financial section while the operation section records details of received bonuses.
In contrast, when dealing with interests and dividends as handled by the IFRS, companies have grounds to select their categorization depending on their view on what is appropriate. Under the IFRS, interest is payable in the financial/operating section similar to paid dividends while received dividends are on the operating/investing section. The formatting structure of a balance sheet in the US is different from the way other countries structure balance sheet. The difference in the GAAP and IFRS balance sheet is primarily in the organization of the assets (Liu et al., 2014). For that reason, the IRFS lists assets in the balance sheets from those that are the least liquid to the most liquid assets. That is, non-current assets come first followed by current assets, owners’ equity, non-current liabilities, and current liabilities. On the other hand, the organization of the GAAP balance sheet is the reverse of the IFRS. Such that, the current liabilities are at the top of the list then non-current liabilities, owners’ equity, existing assets, and non-current assets come last. Assets revaluation root the difference between IFRS and GAAP; hence, asset value reduction due to technology/market leads to a company’s loss on impairment. However, in case the cause of an asset’s value depreciation faces extermination, the value of the asset can highly increase. The standards of GAAP do not allow recognizing the value of an asset after the loss on impairment. In contrast, the rules of IFRS allow revaluation of specific holdings after a loss on impairment bases on adjustment for depreciation and readjustment to the initial cost.
Three Advantages and Disadvantages of Adopting IFRS
Adopting IFRS in a company has both advantages and disadvantages. Easy managing of the balance sheet to ensure the stockholders’ equity section helps manage stocks and shares increasing returns on equity, having similar accounting standards worldwide, together with increased flexibility in accounting practices are advantages of adopting IFRS (Mardiniet al., 2019). The need for the entire world to adopt IFRS for its effectiveness is a disadvantage involved with its adaptation. Also, the presence of vast flexibility in the IFRS deem to cause standard manipulation concerns; thus, companies can hide existing financial issues while fraudulent cases increase (Tuzarová & Mejzlík, 2018). Another disadvantage involves the absence of equal profitability advantages among all businesses since small businesses will have to adopt IFRS leading to increased cost. Since large business already has IFRS, the companies will attain massive profits.
In summary, multiculturalism and diversity add value to the global environment through the introduction and presence of the US GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards. Shifting from companies using the US GAAP using to IFRS has various similarities and differences. Similarities between GAAP and IFRS include a similar structure, usage of a balance sheet, a statement of cash flows, and an income statement, together with using accrual basis to prepare financial statements. The differences between IFRS and GAAP center within cash flows, the balance sheet, and in the revaluation of assets. Easy management of balance sheets to increase equity, similar accounting standards within companies worldwide, and vast flexibility within accounting practices are the advantages of adopting IFRS. The disadvantages of choosing IFRS include lack of equal profitability among businesses, standard manipulation issues, and the effectiveness of using IFRS is only present if the entire world adopts IFRS.
Edel Lemus, M. I. B. A. (2014). The similarities and differences between the financial reporting standards under United States. GAAP versus IFRS. Global Journal of Management And Business Research. http://journalofbusiness.org/index.php/GJMBR/article/view/1406
Liu, C., Yuen, C. Y., Yao, L. J., & Chan, S. H. (2014). Differences in earnings management between firms using US GAAP and IAS/IFRS. Review of Accounting and Finance. https://www.emerald.com/insight/content/doi/10.1108/RAF-10-2012-0098/full/html
Mardini, G. H., Wadi, R. S., & Mah’d, O. A. (2019). Empirical evidence of the suitability of IFRS in emerging markets. Accounting Research Journal. https://www.emerald.com/insight/content/doi/10.1108/ARJ-04-2017-0065/full/html
Tuzarová, S., & Mejzlík, L. (2018). The IFRS assessment by publicly traded companies. In The impact of globalization on international finance and accounting (pp. 341-346). Springer, Cham. https://link.springer.com/chapter/10.1007/978-3-319-68762-9_37
VanderPal, G., & Ko, V. (2014). An overview of global leadership: Ethics, values, cultural diversity and conflicts. VanderPal, G., & Ko, VSC (2014). An overview of global leadership: Ethics, values, cultural diversity and conflicts. Journal of Leadership, Accountability and Ethics, 11(3), 166-175. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2959323
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