EY IFRSComments

It needed sufficient technical understanding to know

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Unformatted text preview: ee needed to understand the changes in conventions and the changes in recognition and measurement bases. In particular it needed to understand the movement towards greater fair value accounting — which IFRS is actually employing — and what this actually means in practice. It needed sufficient technical understanding to know what the numbers actually meant and on what basis they had been prepared in order to discharge its responsibilities as an audit committee,” explained Starkie. BP completed its IFRS conversion within a reasonable budget by training and utilizing internal staff and working closely with its external auditor. Starkie knows that BP’s conversion process is not the model for every organization, but strongly emphasizes the importance of enterprise-wide support, early preparation, a comprehensive impact assessment and a structured conversion methodology. ✔ 7 US GAAP vs. IFRS — practical examples Although many questions around the future of International Financial Reporting Standards (IFRS) remain, both the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have publicly declared their commitment to the convergence of IFRS and US GAAP and have made significant strides towards that goal. Momentum also continues to build for a single set of high quality global accounting standards. As a result, gaining an understanding of the critical differences between IFRS and US GAAP is quickly becoming a priority for US companies and audit committees. A deeper understanding of the comparison of IFRS and US GAAP will be important for the decisions that are yet to come. An illustration of practical examples can help accelerate the learning process. The examples in this article illustrate at a high level the degrees of 8 BoardMatters Quarterly April 2008 difference between IFRS and US GAAP for two common areas of the financial statements: inventory reporting and revenue recognition. Inventory reporting In some areas of the financial statements, a change from US GAAP to IFRS could require minimal transition efforts for preparers and auditors due to the similarities between the two sets of standards. Inventory costing and measurement is one area where important differences exist that may not necessarily result in a high degree of transition complexity. Inventory reporting under both US GAAP (Accounting Research Bulleting 43) and IFRS (International Accounting Standard 2 (IAS 2)) is based on the principle that the primary basis of accounting for inventory is cost. The permitted techniques for cost measurement are comparable for both sets of standards, with one notable exception. The most significant difference noted below is that the last in, first out (LIFO) method of inventory costing is prohibited under IFRS. For those US companies following the LIFO method, the adoption of IFRS may be less complex if company costing processes are consistent for all inventories that are similar in nature and already capture other acceptable costing methods...
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This note was uploaded on 11/21/2009 for the course ACC acc 310 taught by Professor Mlot during the Fall '09 term at N.C. State.

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