BUSINESS PURPOSE ASSIGNMENT 1
BUSINESS PURPOSE ASSIGNMENT
Lionel S. Boayue
School of Business, Liberty University
ACCT 612 Week 1
Dr. Janet Forney
April 19, 2022
BUSINESS PURPOSE ASSIGNMENT 2
The Effects of IFRS on Current Tax Planning Strategy
The United States practices uses the Generally Accepted Accounting Principles (GAAP)
but have in recent years converge with other accounting standards around the world. The process
of converging from GAAP to IFRS is still pending and underway. The conceptual framework of
the International Accounting Standard Board (IASB) is a principle base unlike the GAAP that is
a standard rule base. If the United States finally converge with IFRS, many of the companies in
the United States will be affected including the planning strategies. For any company, taxes plays
a very significant role in the daily functionalities of the entity. Companies always finds ways and
means to limit the amount of tax burden they have to incur. And they accomplish this by proper
planning and development of strategies to maximize their wealth.
“Planning behavior is designed to reduce the net present value of the tax liability”
(Sawyer, Raabe, Whittenburg, and Gill, 2015). Accountants needs to look more closely at
regulatory changes in the near future as they occur and plan their strategies accordingly. “Income
tax planning will include timing, tax entity, exclusions and deductions, income classifications,
special taxes, and interest and penalties (Sawyer el al., 2015). The researcher will be looking at
discussing three accounting standards and strategies and how they will impact the convergence to
IFRS to Include inventory valuation, the revaluation of fixed assets and changes in accounting
for pensions.
Inventory Valuation
For sometimes now, accounting standard authorities have discussed eliminating the Last
in, First Out (LIFO) methods of inventory valuation. If this is accomplished, the will be very
huge, adjustment to how many businesses value their stocks and how it will affects their taxable
income. With the IFRS, LIFO is not allowed but with GAAP, companies can choose from three
BUSINESS PURPOSE ASSIGNMENT 3
methods namely the LIFO, average cost, and FIFO (IAS, 2003). LIFO is considered a tax
loophole in inflationary economies because it yields the lowest net income total as it matches it
current, increased costs against its revenues (Harris and Dilling, 2012). “If companies adopt
LIFO, it will result in a higher income amount in the year of adoption, but this income may be
offset by past net operating losses, minimizing the tax effects” (Harris and Dilling, 2012).
Companies could either adopt LIFO or average cost method of valuating inventory. If companies
adopt LIFO or average cost compared to what is required by law, it could result in paying less
taxes and affects the time value of money.
Revenue Recognition
Revenue recognition and sales transaction have drawn attention since issues of
convergence of IFRS and FASB.” The proposed changes are a radical departure from the way
revenue has been recognized by US GAAP for particular industries. It could dramatically change
revenue recognition, impacting the top” (Ciesielski and Weirich, 2011). If the proposed changes
take place, it will allow accountants to readily estimate future income taxes.
Accounting for Pensions
Accountants and standard setters have for a while have issues with accounting for
pensions. The push towards convergence is one of the driving forces behind how to account for
pension. Publicly traded companies were required to comply certain accounting standards that
relates to the balance sheet and had the potential to impact the P&L. “P&L are affected a gains
and losses stop being amortized. According to Rodger 2013, an accountant should look to
understand the changing nature of the pension arrangements and the legal and social context in
which they operate and translating this understanding into an operational and effective
accounting standard (Napier, 2009).
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Conclusion
Since the proposed convergence of IFRS to GAAP, the future of accounting have present
many challenges. For example, an accountant must now consider all the changes to accounting
for proper tax strategies to be implemented. Accounting for pensions, revenue recognition, and
inventory valuation are just three of the strategies that needs to be considered.
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References
References Ciesielski, J. T., & Weirich, T. R. (2011). Convergence collaboration: Revising
revenue recognition. Management Accounting Quarterly, 12(3), 18. Retrieved from
http://go.galegroup.com.ezproxy.liberty.edu:2048/ps/i.do?id=GALE
%7CA264675400&v=2.1&u=vic_liberty&it=r&p=AONE&sw=w&asid=5afe5ae
69cc5159f56249fed2c41f04a
Harris, P., & Dilling, P. (2012). Managerial opportunities post the last in first out (LIFO)
methods. Journal of Global Business Management, 8(1), 160-165. Retrieved from
http://search.proquest.com/docview/993153509?accountid=12085 IAS. (2003). IAS 2
Inventories. Retrieved from http://www.ifrs.org/IFRSs/Documents/Technical-summaries-
2014/IAS%202.pdf
Klimek, J. L., & Koehn, J. L. (2011, May). Transitioning to IFRS: planning considerations. The
CPA Journal, 81(5), 10+. Retrieved from
http://go.galegroup.com.ezproxy.liberty.edu:2048/ps/i.do?id=GALE
%7CA259595276&v=2.1&u=vic_liberty&it=r&p=AONE&sw=w&asid=ed9dd3d
bb20b741dfe591c5af203c676
Napier, C. J. (2009). The logic of pension accounting. Accounting and Business Research, 39(3),
231-249. Retrieved from http://search.proquest.com/docview/198118445?
accountid=12085 Rodgers, C. (2013). Accounting for pensions. Financial Director, , 18-
19. Retrieved from http://search.proquest.com/docview/1466024496?accountid=12085
Sawyers, R.B., Raabe, W.A., Whittenburg, G.E., and Gill, S.L. (2015). Federal Tax Research
(10th ed.). Stamford, CT: Cengage Learning.
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Schrader, R. W., & Toner, J. F. (2013). Revenue recognition under convergence: Strategic
implications for time value of money in reported income. Journal of American Academy
of Business, Cambridge, 19(1), 235-241. Retrieved from
http://search.proquest.com/docview/1357565499?accountid=12085
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