LIFO INVENTORY METHOD 5
More than 110 nations around the globe uses the InternationalFinancial Reporting Standard (IFRS) as an accounting standard, theIFRS is different from the U.S. Generally Accepted AccountingPrinciple (GAAP) in a number of ways. The IASB promulgates that thedifference and similarity between FASB IFRS and US GAAP will continueto exist especially when accounting for inventories.
The Last In First Out method makes assumption that the inventorymanufactured or purchased last usually sale first in an accountingyear. This technique is commonly used to valuate stock on hand duringthe end of a trading period and cost of sold goods during thatperiod. The LIFO accounting method is only applied in U.S. GAAP. IFRSdoes not support the use of LIFO in book accounting. When accountingfor inventories there are a few differences between the U.S. GAAP andFASB IFRS. In consideration to LIFO inventory method this paperintends to discuss the difference between the US GAAP and FASB IFRS.
Thesis: More than 110 nations around the globe uses theInternational Financial Reporting Standard (IFRS) as an accountingstandard, the IFRS is different from the U.S. Generally AcceptedAccounting Principle (GAAP) in a number of ways. The IASB promulgatesthat the difference and similarity between FASB IFRS and US GAAP willcontinue to exist especially when accounting for inventories.
In the United States the term GAAP is used to refer to authoritativeliterature body, which comprises of U.S. accounting and reportingstandard. The federal security Laws authority also gives mandate toSEC to source GAAP rules. The difference between GAAP and IFRS isthat IFRS is designed to be used by only profit making company. GAAPis applicable to both with extra codification topics required for itto be used specifically by nonprofit companies.
Any business or firm that claim to comply IFRS must comply with allIFRS interpretations, standard, disclosure requirement and makeunreserved and explicit statement showing compliance to IFRS. This isthe same applies GAAP only that the explicit and unreserved statementis not necessary. Objective of GAAP requires that in accordance tothe US GAAP the financial statement present fair presentation. On theother hand, IFRS overriding requirement is that the financialstatement gives a fair view. Thus, the objectives of the two aredifferent in that GAAP offers two separate objectives for profitmaking and non-profit companies, while as IFRS only uses oneobjective for both profit and non-profit making companies (Gelinas,et al, 2012).
Similarities between IFRS and GAAP
IFRS and GAAP are similar in so many ways
Have complete financial statement set: balance sheet, profit and loss account (income statement) cash flow statement
Both require any change made to shareholder equity be presented. It is important to note that in GAAP information about shareholder equity is presented as notes in the financial statement. While as in IFRS the information on changes on shareholder equity is given as separate statement.
Differences between U.S. GAAP and IFRS
The United States is the country that uses GAAP to account for inventories while as most companies uses IFRS.
IFRS requires that company’s values inventory at net realizable value while as GAAP carry inventories at current replacement cost that subject to floor and ceiling of net realizable value deduct normal profit margin.
Other differences are on consolidation whereby IFRS favors Control Model, while GAAP favor reward and risk model.
Earning-per-share- GAAP the incremental share in individual interim period is averaged in the computation of earnings-per-share in IFRS this does not take place.
Most nations in the world use IFRS. GAAP is mostly used in the UnitedStates. There a few differences between the two methods especially onhow they account for inventories. IFRS does not recognize LIFO whichis used by most US companies which compiles to GAAP. The two methodsare also similar in that all use almost all the financial statement.
Gelinas, U. J., Dull, R. B., & Wheeler, P. R. (2012). Accountinginformation systems. Mason, OH: South-Western/Cengage Learning.