COURSE TITLE: Financial and Managerial Accounting (MBA531)
Group assignment
Group 6(six)
PARTICIPATED GROUP MEMBERS
No Name ID section
1. ZIMITA MEKONNEN 525/14 6
2. AMLAKU TILAHUN 562/14 6
3. DEREJE ABEGAZ 576/14 6
4. ABERA TSEGAYE 513/14 6
SUBMITTED TO:Tigist Belachew (PHD)
JANUARY 30, 2022
Addis Ababa Ethiopia
1. Compare and contrast generally accepted accounting principles (GAAP) and international
financial reporting standard (IFRS) Difference between GAAP and IFRS?
GAAP IFRS
Rule based Principle based
Inventories Inventories
Have the choice between LIFO and FIFO. Under IFRS, LIFO cannot be used
issued by Financial Accounting issued by International Accounting
Standards Board (FASB) Standards Board (IASB)
is a common set of accepted is a set of international accounting
accounting principles, standards, and standards, which state how particular
procedures that companies and their types of transactions and other events
accountants must follow when they should be reported in financial
compile their financial statements. statements.
GAAP is specific to the United States IFRS is a global set of standards used
and has been adopted by the SEC. by 15 of the G20 countries.
Development costs: Under GAAP, Development costs: Under IFRS, the
these costs are considered expenses. costs are capitalized and amortized
over multiple periods. This applies to
the internal costs of developing any
intangible assets
Write-downs: GAAP specifies the Write-downs: On the other hand, the
write-down amount of an inventory or IFRS allows the write-down to be
fixed asset can't be reversed if the reversed. This results in inventory
market value of the asset subsequently values fluctuating more frequently
increases. under IFRS than under GAAP.
Fixed Assets: Under GAAP, fixed Fixed Assets: Under IFRS, fixed
assets such as property, plant, and assets are also valued at cost, but
equipment (PP&E), must be recorded companies are allowed to revalue
fixed assets to the fair market value.
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at historical cost (the purchase price),
and depreciated accordingly.
The ultimate goal of GAAP is to IFRS fosters greater corporate
ensure a company's financial transparency.
statements are complete, consistent,
and comparable.
GAAP is the set of accounting (IFRS) were created to bring
principles set forth by the FASB that consistency and integrity to
U.S. companies must follow when accounting standards and practices,
putting together financial statements regardless of the company or the
country.
International Financial Reporting Standards (IFRS) are a set of accounting rules for the financial
statements of public companies that are intended to make them consistent, transparent, and easily
comparable around the world. The IFRS system is sometimes confused with International
Accounting Standards (IAS), which are the older standards that IFRS replaced in 2001
IFRS specify in detail how companies must maintain their records and report their expenses and
income. They were established to create a common accounting language that could be understood
globally by investors, auditors, government regulators, and other interested parties.
The standards are designed to bring consistency to accounting language, practices, and
statements, and to help businesses and investors make educated financial analyses and decisions.
They were developed by the International Accounting Standards Board, which is part of the not-
for-profit, London-based IFRS Foundation. The Foundation says it sets the standards to “bring
transparency, accountability, and efficiency to financial markets around the world."
Standard IFRS Requirements
IFRS covers a wide range of accounting activities. There are certain aspects of business practice
for which IFRS set mandatory rules.
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Statement of Financial Position: This is the balance sheet. IFRS influences the ways in
which the components of a balance sheet are reported.
Statement of Comprehensive Income: This can take the form of one statement or be
separated into a profit and loss statement and a statement of other income, including
property and equipment.
Statement of Changes in Equity: Also known as a statement of retained earnings, this
documents the company's change in earnings or profit for the given financial period.
Statement of Cash Flows: This report summarizes the company's financial transactions
in the given period, separating cash flow into operations, investing, and financing.
In addition to these basic reports, a company must give a summary of its accounting policies. The
full report is often seen side by side with the previous report to show the changes in profit and
loss.
Generally accepted accounting principles (GAAP) refer to a common set of accounting principles,
standards, and procedures issued by the Financial Accounting Standards Board (FASB). Public
companies in the U.S. must follow GAAP when their accountants compile their financial
statements. GAAP is a combination of authoritative standards (set by policy boards) and the
commonly accepted ways of recording and reporting accounting information. GAAP aims to
improve the clarity, consistency, and comparability of the communication of financial
information.
GAAP may be contrasted with pro forma accounting, which is a non-GAAP financial reporting
method. Internationally, the equivalent to GAAP in the U.S. is referred to as International
Financial Reporting Standards (IFRS). IFRS is currently used in 166 jurisdictions. GAAP helps
govern the world of accounting according to general rules and guidelines. It attempts to
standardize and regulate the definitions, assumptions, and methods used in accounting across all
industries. GAAP covers such topics as revenue recognition, balance sheet classification, and
materiality.
The ultimate goal of GAAP is to ensure a company's financial statements are complete, consistent,
and comparable. This makes it easier for investors to analyze and extract useful information from
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the company's financial statements, including trend data over a period of time. It also facilitates
the comparison of financial information across different companies.
Generally,GAAP is focused on the accounting and financial reporting of U.S. companies. The
Financial Accounting Standards Board (FASB), an independent nonprofit organization, is
responsible for establishing these accounting and financial reporting standards. The international
alternative to GAAP is the International Financial Reporting Standards (IFRS), set by
the International Accounting Standards Board (IASB).
The IASB and the FASB have been working on the convergence of IFRS and GAAP since
2002. Due to the progress achieved in this partnership, the SEC, in 2007, removed the requirement
for non-U.S. companies registered in America to reconcile their financial reports with GAAP if
their accounts already complied with IFRS. This was a big achievement because prior to the
ruling, non-U.S. companies trading on U.S. exchanges had to provide GAAP-compliant financial
statements.
