Explore BrainMass
Share

Theory: GAAP vs. IFRS finance choices, best statement

This content was STOLEN from BrainMass.com - View the original, and get the already-completed solution here!

1. The Financial Accounting Standards Board (FASB) sets the accounting rules for public companies in the United States. These accounting rules are known as Generally Accepted Accounting Standards (GAAP). The International Accounting Standards Boards (IASB) proposes international accounting rules. These rules are known as International Financial Reporting Standards (IFRS). There has been considerable discussion concerning the possibility that the United States would replace GAAP with IFRS.

Accordingly, do you think the United States should replace GAAP with IFRS? Do you believe that IFRS will ever be an universally accepted set of accounting rules?

2. Using the DuPont Model, should we assume that every company should have a high profit margin and a high asset turnover in order to be successful?

3. Current assets are an important element of the firms resources used primarily to provide the firm liquidity to support their current and long term liabilities. What are some of the issues concerning these important assets and how management and investors look closely at them to determine the health of the firm.

4. In the development of a depreciation approach for the long-term assets of the firm what areas should the accountant be looking at to determine which method should be used. What areas for tax purposes should be considered or are they the same?

5. In looking at the owners' equity does it matter how we blend the common and preferred stock in the firm? Why would management choose the use of stock to support the financial needs of the firm rather than the use of debt?

6. There are 4 main financial statements that we use for our financial management of the firm. Which is more important and how do they relate to one another? Can we do without any of them? What would be some of the information we would expect to see in the notes to the financial statements?

7. What is the difference between financial accounting and managerial accounting? Provide example of each and how they assist management in the control of the firm. Identify the some of the areas both work in and some of the unique models that each use. Can both be used interchangeably and if not why not.

© BrainMass Inc. brainmass.com October 25, 2018, 8:58 am ad1c9bdddf
https://brainmass.com/business/accounting/theory-gaap-vs-ifrs-finance-choices-best-statement-559496

Solution Preview

1. The Financial Accounting Standards Board (FASB) sets the accounting rules for public companies in the United States. These accounting rules are known as Generally Accepted Accounting Standards (GAAP). The International Accounting Standards Boards (IASB) proposes international accounting rules. These rules are known as International Financial Reporting Standards (IFRS). There has been considerable discussion concerning the possibility that the United States would replace GAAP with IFRS.

Accordingly, do you think the United States should replace GAAP with IFRS? Do you believe that IFRS will ever be an universally accepted set of accounting rules?

I think the US GAAP will start looking more and more like IFRS as the two standard setting bodies work together. I do not think it will replace US GAAP because the level of litigation in the US requires more specific rules than IFRS offers. Auditors need the certainty of the rules to avoid litigation that questions their judgment and puts them out of business.

2. Using the DuPont Model, should we assume that every company should have a high profit margin and a high asset turnover in order to be successful?

While it would be awesome to have high turnover and high margins, it is nearly impossible to accomplish. The two ingredients to the DuPont model (profit margin and turnover) are usually a tradeoff (except perhaps for monopolies). That is, if you lower the price, you get higher volumes. If you raise the price, volume goes down but profit margins rise. So, these two are usually moving in the opposite directions of each other. You can be successful with high turnover (think Costco) OR high margins (Apple).

3. Current assets are an important element of the firms resources used primarily to provide the firm liquidity to support their current and long term liabilities. What are some of the issues concerning these important assets and how management and investors look closely at them to determine the health ...

Solution Summary

Your tutorial comments are 918 words and offer the opinion of Dr. Sargent (and so no references are included) on these questions.

$2.19
See Also This Related BrainMass Solution

GAAP vs. IFRS and comparing IRR, NPV, and payback approaches

GAAP vs. IFRS

The United States uses Generally Accepted Accounting Principles (GAAP) as the basis of financial reporting. The International Financial Accounting Standards (IFRS) is an alternative way to report financials. This article from Ernst and Young compares the two methods of financial reporting.

Ernst & Young's US GAAP vs. IFRS: The Basics http://www.ey.com/Publication/vwLUAssets/IFRS_vs_US_GAAP_Basics_March_2010/$FILE/IFRS_vs_US_GAAP_Basics_March_2010.pdf

After reading the article from Ernst and Young, answer the following questions:

- How does the GAAP reporting method cause cash flows to differ from net income?
- How are the features of the Income Statement, Balance Sheet, and Statement of Cash Flow utilized in both the GAAP and the IFRS reporting methods?
- Does it make sense to adapt a worldwide standard for financial reporting? Should this be mandated or voluntary?
- Calculate some of the potential costs and benefits of switching from GAAP to IFRS.

Capital Rationing

Compare and contrast the Internal Rate of Return (IRR), the Net Present Value (NPV), and Payback approaches to capital rationing. Which do you think is better? Why?

View Full Posting Details