“Consider the following scenario: You are the new chief financial officer of ABC Corp., a company in the United Kingdom, and you’ve been asked to help with the consolidation of your new U.S. subsidiary. ABC Corp. uses International Financial Reporting Standards (IFRS) accounting practices, while the subsidiary used U.S. Generally Accepted Accounting Principles (GAAP).
In your initial post, describe and compare the process when a subsidiary is consolidated under IFRS versus U.S. GAAP. Also, explain how goodwill is determined under each practice.
Post a response to at least two of your classmates’ comments, and compare and contrast your post with theirs.”
2 replies to the following attached posts
(JT) – After reading chapter 4 this week we can spot differences in
financial statements using IFRS & GAAP. From last week we already
know that GAAP has the strict rigid rules of the industry guidelines it
follows, while IFRS is more lenient and goes by its principles. It’s around
page 104 of the text on inventories we can see a differences (Doupnik,
2020). IFRS does not use the LIFO method while doing
inventory. Looking at the things from a item to item basics certain
inventory, but the only stipulation is if there is a market value increase
you wouldn’t be able to with GAAP. Under the “Measurement
subsequent to initial recognition” (Doupnik, 2020) section (under page
107) is another difference I spotted with the revaluation model and that
under fair values IFRS allows while the GAAP does not. Intangible asset
starts around page 120 (Doupnik, 2020). Different expenders and
development cost would be capitalized under IFRS but its worth noting
its never amortized. Lastly if we look at goodwill difference IFRS
measures its standards by measuring out “cost of acquisition” and fair
value (Doupnik, 2020). GAAP goodwill you would be looking at the cost
of acquisition but this time the acquired assets of company.
(AW)
Consider the following scenario: You are the new chief financial officer of ABC Corp., a company
in the United Kingdom, and you’ve been asked to help with the consolidation of your new U.S.
subsidiary. ABC Corp. uses International Financial Reporting Standards (IFRS) accounting
practices, while the subsidiary used U.S. Generally Accepted Accounting Principles (GAAP).
In your initial post, describe and compare the process when a subsidiary is consolidated under
IFRS versus U.S. GAAP. Also, explain how goodwill is determined under each practice.
Since in some cases IFRS has more flexibility than U.S. GAAP – Having a U.S. subsidiary
consolidating under IFRS may fall in line more easily, however Inventories under IFRS have more
guidance than GAAP and how cost is determined. The US Subsidiary will have to implement the
IFRS inventories cost formulas to adjust for this. IFRS uses the First In, First Out (FIFO) method
and LIFO is not allowed. They must also use the same cost formula for all similar types of
inventories under IFRS, whereas GAAP does not require the uniform cost formula.
Our text states that Goodwill is determined as the difference between A and B.
A: the consideration transferred by the acquiring firm plus any amount recognized as
noncontrolling interest
B. The fair value of net assets acquired (identifiable assets acquired less liabilities assumed).
Under U.S. GAAP – NCI must be measured at its fair value on the date of acquisition (which
includes the NCI’s share of goodwill) whereas IFRS allows that noncontrolling interest to be
measured at either the fair value or a proportionate share of the fair value of the acquired firm’s
identifiable net assets (excluding goodwill) (Doupnik, 2020).
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