IFRS and GAAP Convergence
November 29, 2014 November 29, 2014
IFRS and GAAP Convergence
1. Briefly describe the corporation you researched.
The planetary drink and nutrient company PepsiCo, Inc. was incorporated on November 13, 1986. The corporation sells, distributes, makes, and markets, a assortment of drinks and nutrients, through the contract makers, concern ‘s bottlers, and other associates. Their concern has expanded in more than 200 districts and states. PepsiCo comprises four concern units: PepsiCo Americas Foods ( PAF ) , PepsiCo Americas Beverages ( PAB ) , PepsiCo Europe, and PepsiCo Asia, Middle East and Africa ( AMEA ) . The PAF consist of Quaker Foods North America ( QFNA ) , Frito-Lay North America ( FLNA ) , and all of its Latin American bite and nutrient concerns ( LAF ) . The PAB consist of all of its Latin American and North American drink concerns. PepsiCo Europe comprises all nutrient, drink, and bite concerns in South Africa and Europe, and PepsiCo Asia, Middle East and Africa ( AMEA ) comprises all nutrient drink, and bite concerns in AMEA, excepting South Africa. It manufactures sells and markets a scope of Sweet, salty, and grain-based bites, non-carbonated and carbonated drinks, dairy merchandises and other nutrients. Its operations are in Canada, United States, Mexico, the United Kingdom and Russia ( Reuters, n.d. ) .
2. Given the SEC’s current place on necessitating U.S. publicly traded companies to describe utilizing the IFRS method of accounting, discourse whether or non it would be good or punitory to the company when following IFRS. Explain your principle.
The Securities and Exchange Commission ( SEC ) has been supported the development of a lone one set of globally accepted accounting criterions since 2002, when it has been announced a Memorandum of Understanding ( MOU ) . The Financial Accounting Standard Board ( FASB ) and the International Accounting Standard Board ( IASB ) have been working together to unite the accounting criterions and MOU have been created to join forces on the betterment of high quality criterions and holding the eventual end of a lone one set of globally accepted accounting criterions. The MOU has been updated in 2006 and 2008 to find the range of their work plan and to place the most critical marks in order to finish the convergence. Besides in 2010, the SEC have been directed the staff to come up with a Working Plan that will inform the SEC to find whether to integrate International Financial Reporting Standards ( IFRS ) into the fiscal coverage system for U.S. issuers ( U.S. SEC, 2010 ) . It seems that there are some troubles the accounting criterion compositors are confronting when it comes to convergence of the criterions. As FASB Chairman Leslie Seidman mentioned, “U.S. fiscal describing demands more precise, clear counsel than the IASB’s wide, principles-based attack offers” ( Tysiac, 2012 ) .
When following IFRS, a company can show its fiscal statements on the same footing as companies from other states that besides use IFRS, doing comparings much easier. Corporations like PepsiCo with subdivisions in states that permit or require IFRS have the advantage to utilize one accounting linguistic communication corporation-wide. PepsiCo is a U.S. transnational corporation and following IFRS will hold besides the advantage of salvaging cost because they can utilize a alone coverage system for their operations at all units around the universe. Additionally, if PepsiCo is following IFRS, so they could standardise the accounting and fiscal coverage policies and so, they could hold a steady set of accounting policies and fiscal statements in each state where local coverage is required. They could cut down trust on local accounting resources for statutory coverage intents, better standardized preparation plans and extinguish divergent accounting systems. Having one accounting linguistic communication, they could hold better control over the quality and issue of fiscal statements in other subordinates. Another great advantage that PepsiCo could hold is a better hard currency direction. This manner, the dividends that will be paid from other units, may be based on local fiscal statements and besides the hard currency flow planning will be improved ( Street, 2008 ) .
3. Determine the differences that would happen ( or hold occurred ) by utilizing IFRS for the income statement, balance sheet, and statement of hard currency flows, and how these differences may pull investors to the company.
If PepsiCo is traveling to follow IFRS, investors and other users of fiscal statement will hold a better apprehension of this corporation’s nowadays and past fiscal place and will measure prospective hereafter hard currency flow. Under IFRS, the statements will include the sums and subtotals including the net income or loss subtotal. Harmonizing to FASB, the fiscal statements need to incorporate a statement of fiscal place, a statement of alterations in equity, a statement of comprehensive income, and a statement of hard currency flow for a period of two old ages for comparing intents. FASB is necessitating a subtotal for net income and merely one statement of net incomes and comprehensive income.
Under the IFRS, PepsiCo will necessitate to alter the name of balance sheet to statement of fiscal place. The large difference for this statement is that liabilities and assets will non be separated into different subdivisions ; they will be into the same subdivision and will be netted together. The liabilities and equity will be negative sums and assets will be positive. There will be sums for each subdivision and class and there will be subtotals disclosed in the footers or at the underside of the statement. The subtotals and expansive sums will be for short term assets and liabilities ( McClain, & A ; McLelland, 2008 ) .
The grosss, disbursals, additions and losingss will be presented within the subdivisions and classs based on its primary activities or maps on a statement of comprehensive income. As FASB and IASB decided, the fiscal statement presentation will non change bing criterions in respects to what points are recognized separate of net income or loss. Therefore, PepsiCo should show a stand-alone statement of comprehensive income with other comprehensive income ( OCI ) points ; nevertheless, they will be presented in a separate subdivision. Within the OCI subdivision PepsiCo should bespeak which category-operating, funding or puting each OCI point relates to. In the statement of fiscal place the income revenue enhancements section will include current and deferred income revenue enhancement assets and liabilities and will be allocated among go oning or discontinued operations, points charged or credited straight to equity and points of other comprehensive income ( McClain, & A ; McLelland, 2008 ) .
For the statement of hard currency flow, PepsiCo will see two important alterations. One is that the impression of hard currency equivalents will be replaced by hard currency merely. Besides by utilizing IFRS, PepsiCo will necessitate to show the hard currency flow under the direct method.
By utilizing the IFRS, investors and fiscal statement users will foretell hard currency flows for equity rating much easier as these fiscal statements reassign attending from net income to entire comprehensive income, because all other comprehensive income points will be presented on the face of the statement.
4. Compare and contrast the differences in the fiscal statements, and the advantages and disadvantages of utilizing IFRS versus GAAP coverage.
IFRS and GAAP are two different criterions and one of the major differences is the conceptual attack. The IFRS is principle-based while GAAP is rule-based. Under the IFRS attack similar minutess could hold different readings that the standards-setting board can clear up it, and there are fewer exclusions than the GAAP rules-based system. The differences between the two criterions are non halting at the conceptual attack. If we are to take into consideration consolidation, the GAAP favors a hazard and honor theoretical account while IFRS prefers a control theoretical account. The GAAP statement of income is demoing the extraordinary points below the net income whereas under IFRS they are non segregated in the income statement. There is besides a difference in respects with stock list. Under GAAP, concerns could take between LIFO and FIFO whereas under IFRS they have to utilize FIFO merely, as LIFO method is prohibited. Earning-per-Share computation under GAAP averages the single interim period incremental portions while under IFRS the calculation will non average the single interim period computations. I would wish to advert besides the development cost differences. Under GAAP these costs are considered disbursals whereas under IFRS they are capitalized when certain standards are met ( Forgeas, 2008 ) .
Along with differences between these two criterions are coming the advantages and disadvantages of utilizing IFRS alternatively of GAAP. One of the advantages is that IFRS is concentrating more on investors as these criterions are holding more comprehensive, accurate and timely fiscal statement information. The investors can understand more easy the information from the fiscal statement as there are simpler and are holding a better quality. With the harmonisation under IFRS the investors will non hold to pay any longer for seting the statements and so to be able to understand them. One of the of import characteristics of IFRS is the fact that the loss in recognized instantly and this is a great benefit for investors and besides for the stakeholders and loaners. The efficiency of undertaking between houses and their direction is increased by this loss acknowledgment and the great transparence of this criterion. If all states will meet to IFRS, the comparison of fiscal statements will greatly increase as there will be a individual coverage standard worldwide. A significant advantage of the IFRS is the relevancy of this criterion because it reflects more on economic substance than legal signifier. I would wish to advert, besides as an advantage, the fact that the balance sheet under this criterion is more utile because of its layout, consistence and the less complexness.
There have been listed here rather a few advantages of IFRS comparison to GAAP. However, change overing to IFRS has its disadvantage related to the costs that will incur when change overing to it. Those who are change overing to IFRS will hold great costs related to altering the internal system as to do it compatible with IFRS, developing cost and so on. After change overing, the benefits mentioned before will non be seen right off as there will take some old ages for them to be seen. Besides the major costs, a large disadvantage of change overing is that will do the IASB the monopolizer of puting criterions ( Jordan, 2013 ) .
5. Make recommendations as to whether the company you researched should utilize IFRS or GAAP as its describing criterion. Explain your principle.
As all concerns are traveling toward a planetary economic system, the demand to travel toward planetary accounting criterions is going at hand. Progresss in engineering, communicating, transit systems, the Internet, and lower trade barriers, have extended the market place in which concerns operate. In recent old ages, the tendency toward US concerns gaining more net incomes in a foreign state has accelerated. Many of these world-wide concerns are gaining more than 50 % of gross from foreign gross revenues and it’s showing the turning of globalisation ( Fosbre, Kraft, & A ; Fosbre, 2009 ) . Multinational companies, such as PepsiCo, have their place in the US, but operate in many other states and following IFRS will be good.
For PepsiCo, following IFRS will hold the advantage of salvaging cost because they can utilize a alone coverage system for their operations at the units in states that are besides utilizing IFRS. Additionally, if PepsiCo is following IFRS, so they could standardise the accounting and fiscal coverage policies and so, they could hold a steady set of accounting policies and fiscal statements in each state where local coverage is required. They could cut down trust on local accounting resources for statutory coverage intents, better standardized preparation plans and extinguish divergent accounting systems. Having one accounting linguistic communication, they could hold better control over the quality and issue of fiscal statements in other subordinates. Another great advantage that PepsiCo could hold is a better hard currency direction. This manner, the dividends that will be paid from other units, may be based on local fiscal statements and besides the hard currency flow planning will be improved ( Street, 2008 ) .
Mentions
Forgeas, R. ( 2008, June 16 ) . Is IFRS that different from U.S. GAAP? Retrieved from hypertext transfer protocol: //www.ifrs.com/overview/general/differences.html
Fosbre, A. B. , Kraft, E. M. , & A ; Fosbre, P. B. ( 2009 ) . The globalisation of accounting criterions: IFRS versus US GAAP.Global Journal of Business Research ( GJBR ) ,3( 1 ) , 61-71.
Jordan, A. ( 2013, September 26 ) . Advantages and disadvantages of IFRS compared to GAAP. Retrieved from hypertext transfer protocol: //research-methodology.net/advantages-and-disadvantages-of-ifrs-compared-to-gaap/
McClain, G. , & A ; McLelland, A. J. ( 2008 ) . Shaking up fiscal statement presentation.Journal of Accountancy,206( 5 ) , 56-64
Reuters. ( n.d. ) . Profile: PepsiCo Inc ( PEP ) . Retrieved from hypertext transfer protocol: //www.reuters.com/finance/stocks/companyProfile? symbol=PEP
Street, D. L. ( 2008 ) . The impact in the United States of planetary acceptance of IFRS.Australian Accounting Review, 18( 3 ) , 199. doi:10.1111/j.1835-2561.2008.0025.x
Tysiac, B. ( 2012, December 4 ) . FASB, IASB brotherhood fragile amid SEC indecisiveness on IFRS.Journal of Accountancy. Retrieved from hypertext transfer protocol: //www.journalofaccountancy.com/News/20126951.htm
U.S. Securities and Exchange Commission. ( 2010 ) . Spotlight on Work Plan for Global Accounting Standards. Retrieved from hypertext transfer protocol: //www.sec.gov/spotlight/globalaccountingstandards.shtml
