d

1

GAAP VS IFRS ASSIGNMENT 3

GAAP vs IFRS Assignment

Alexander, Apanyin

SNHU

GAAP vs IFRS Assignment

Accounting is a language of business because it contains fundamental skills that reveal insights into a company's financial health and potential. It also highlights the company's strategic plans, and decision-making skills which are vital in developing new ventures and investment opportunities. GAAP and IFRS are accounting standards critical in providing financial information of a company and accurate statements that can be compared based on reported data from other organizations. GAAP is an acronym for Generally Acceptable Accounting Principles set by FASB and adhered to by US companies. IFRS refers to International Financial Reporting Standards dictated by IASB and adhered to by companies from other parts of the world. This paper discusses how Target Company can switch from GAAP to IFRS.

Target was established in 1902. It was originally named as Goodfellow Dry Goods and later renamed as Dayton’s Dry Goods Company in 1903. The first Target store was established in Roseville, Minnesota in 1962. The company has been using GAAP (NYSE:TGT) even in the fourth-quarter and full year results of 2020. Target needs to transition from the use of GAAP to IFRS because it is vital in handling financial reports from its subsidiary stores or companies away from the US.

Switching from GAAP to IFRS has been an issue of concern in the company. The switching process is essential in reducing confusion in financial statuses because it promotes simplicity in financial statements, streamlines reporting, provides consistency and transparency, and avoids a future financial crisis due to poor data reporting and formatting (Hsu et al. 2020). According to research, switching from GAAP to IFRS leads to higher accounting qualities; however, the switching process is not easy because the two bodies are different, and so does their approaches in accounting. For instance, GAAP use methods that follow the rules while IFRS is principle-based. The rule-based approach entails complex guidelines with criteria for all possible contingencies and rules for every form of transaction, thus promoting uniformity. This is different from IFRS because, through principles, the objectives of good reporting in every part of the accounting process are specified. This methodology promotes transparency since it provides guidance, explain objectives, and uses examples to relate to the concepts.

Therefore, switching will require a critical analysis of the GAAP rules and logically converting them into IFRS. This will generally impact taxes and inventory costs, especially Target’s management ought to analyze the current reports to establish whether the information contained therein is correct or not based on the company’s liquidity and R&D costs. More so, IFRS has a shorter volume of principle-based standards, which requires more judgment than what accounting and financial professionals know when using US GAAP. That implies that training will come in handy to help the employees prepare for the transition. Target can also opt to collaborating with any European country that have had a successful transition over the years.

Differences

There will be differences in financial statement after Target has transitioned from GAAP to IFRS. Revenue recognition is an example of the parts that will be different. On GAAP, revenue is recognized after every exchange. However on IFRS, the statement bears four sections including sales of goods, contracts of construction, services and asset entities. In GAAP, extraordinary items are separated while on IFRS, they are not separated. IFRS fancies control models while the GAAP favors the risk-reward model that is why FIN 46 ® consolidated entities can be shown as separate entities on the IFRS. Another aspect is the statement of income, whereby under the IFRS, extraordinary items are never segregated while the US GAAP appear below the net income (Jeffers et al. 2010). On the inventory, LIFO cannot be used under inventory records of IFRS, while in the US GAAP; companies can freely use the LILO or the FIFO. Some more differences stem from earnings per share, whereby under the IFRS, the calculations for earnings per share do not result in the individual interim period. At the same time, in the US GAAP, the computation leads to increased shares.

Similarity

Both the GAAP and the IFRS highlights the financial aspects and standards of the company.

The income statements at Target Company will be changed and look different because the extra-ordinaries and discounted operations will not be separated from the statements. All the consolidations under the FUN 46 ® will be separated on the IFRS. More, there will be changes in earnings per share to avoid them averaging to individual interims.

References

Hsu, F. J., & Chen, S. H. (2020). Does corporate social responsibility drive better performance by adopting IFRS? Evidence from an emerging market. Journal of Computational and Applied Mathematics, 371, 112631.

Jeffers, A. E., Wei, M., & Askew, S. (2010). The Switch from US GAAP to IFRS-Implications for Analysis Involving Inventories. Proceedings of the Northeast Business & Economics Association.