IFRS and FASB Convergence Pros and Cons

IFRS and FASB Convergence Pros and Cons - In general, when...

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In general, when IFRS and US GAAP are compared, the primary difference between the two seems to be the over simplified explanation that GAAP is more rules-based whereas IFRS is principles-based. This is both a pro and a con for each entity. US GAAP’s steadfast rules leave little room for interpretation. Interpretation can lead to fluctuations in what is acceptable. When you have a hard fast rule, such as a lease term that is greater than 75% of the common life of an asset as compared with the term “major part” of the economic life of an asset, there is no room for estimates or interpretations. 75% is 75%. The numbers speak for themselves. Whereas, a “major part” could be interpreted as anywhere from 51% on up, depending on the decision maker’s mood. However, on the flip side of that, the hard line number of 75% places managers in a position to manipulate the conditions of the lease to achieve a certain reporting objective. If management knows the magic number is 75%, then they know that the lease will be classified as
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This note was uploaded on 10/18/2011 for the course LITERATURE LIT 101 taught by Professor Stault during the Spring '11 term at Albany State University.

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