Inconvenience By Using Ifrs And Gaap Essay

446 WordsMar 6, 20112 Pages
I personally agree with the statement of “Although IFRS is being used in many countries worldwide, financial statements are not yet truly comparable on a global basis”. With the increase in using IFRS by approximately 100 countries now, but there are other countries still using other accounting standard mainly US using GAAP. With different standards, it will be difficult to compare with each others, which brings to incomparable in the global basis. For example, IFRS measures inventories at the lower of Cost and Net Realizable Value. It’s an entity-specific value, instead of a market value. But US GAAP measures inventory at the lower of Cost and Market, where Market means current Replacement Cost with Net Realizable Value as the upper limit and Net Realizable Value reduced by an allowance for normal profit margin as the lower limit. (Reference: Article, US GAAP vs. IFRS, January 2009 – Ernst & Young, page 13) Nevertheless, under IFRS, only LIFO and Weighted Average are permitted besides specific identification. At the same time, IFRS requires that all inventories having a similar nature or use, the same cost formula should be used. US GAAP permits LIFO and does not have explicit requirement for consistent application of cost formula for similar inventories. (Reference: Article, US GAAP vs. IFRS, January 2009 – Ernst & Young, page 13) With regards to the points mentioned above, which actually are small parts of the differences between IFRS and GAAP? (Please refer to Appendix 1 for the comprehensive different between them.) Thus, how can we compare the financial information in these 2 different financial instruments? During the economy crisis in 2008, people are aware the deficiencies of measurement under current market conditions. Most people now require the provision of appropriate information in disclosure notes to the accounts. This would allow users to put

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