GAAP Standards Research Articles

Inventory Cost Flow Assumptions and Limitations of Lifo: A Case Study of a Manufacturing Firm in Albania

Valuing inventory at cost is crucial for understanding a firm's expenses, gross profit, taxes, net income, and ending inventory during a specific accounting period. This study focuses on inventory cost flow assumptions under IFRS and U.S. GAAP standards. In the Albanian accounting system, Specific Identification (SI), First In, First Out (FIFO), and Weighted Average Cost (WAC) methods are accepted. Among these, FIFO and WAC are the most commonly used inventory cost flow assumptions. The study also examines the reasons for the ban on Last In, First Out (LIFO) cost flow assumption by IFRS and Albanian accounting standards. An empirical analysis using a case study of a manufacturing firm reveals that the WAC assumption is more favorable, as it results in lower cost of goods sold (COGS) and an ending inventory cost that closely aligns with current market prices.

Why do accounting issues end up in the ‘too difficult’ box?

I discuss outcome-based characteristics of several vexatious and recurring standard-setting issues, described for purposes of this paper as ‘too difficult,’ and apply these characteristics to identify four examples of ‘too difficult’ accounting issues: reporting financial performance; disaggregated financial performance reporting as exemplified by segment reporting; distinguishing liabilities from equity; and accounting for intangible assets. I use existing and superseded IFRS and US GAAP standards and due process documents to illustrate the ‘too difficult’ nature of these issues. I then analyse the four ‘too difficult’ issues and discern two underlying causes. The first cause arises because existing conceptual frameworks contain either no guidance or indeterminate guidance for resolving ‘too difficult’ issues. The second cause arises when a conceptually grounded solution to a reporting issue exists but one of the following conditions is present: the solution is, as a practical matter, infeasible to implement; the solution requires so many subjective judgments and estimates that the resulting information is unlikely to be comparable and timely; the solution raises concerns about what some view as undesirable outcomes in performance reporting, in particular, volatility. I briefly discuss the extent to which extant accounting research might assist in resolving ‘too difficult’ issues and offer suggestions for future research.

Does Restricting Managers' Discretion through GAAP Impact the Usefulness of Accounting Information in Debt Contracting?†

ABSTRACTWe examine whether restricting managers' discretion through GAAP impacts the usefulness of accounting information in debt contracting. Our study informs standard setters and regulators regarding the debt contracting implications of limiting managers' discretion via accounting standards. We predict and find that under more restrictive standards, lenders make more non‐GAAP modifications to GAAP‐based performance measures, suggesting that restrictions of managers' discretion reduce the usefulness of accounting information. We perform two additional analyses to enhance identification. First, in line‐item‐level analysis, we document a positive relation between the exclusion of specific nonrecurring items from contractual definitions of earnings and the number of restrictions in the GAAP standards that apply to each specific item each year. Second, using difference‐in‐differences tests around standard changes, we find that the propensity to exclude items varies positively with changes in the restrictiveness of related standards. Moreover, we predict and find that restrictive standards are also positively associated with loan spreads but significantly less so when lenders adjust GAAP numbers in loan contracts. Overall, this study improves our understanding of how attributes of accounting standards impact the usefulness of accounting information.

U.S. GAAP or IFRS - A Review of Literature

Purpose: This paper purpose is to report the differences between U.S. GAAP and IFRS by presenting a review of literature available on the topic. Methodology: This paper is based on review of 27 research papers. This paper is divided into two parts. First part presents the previous studies focused on business aspects (companies can ill afford the cost of an increasing number of GAAP standards and impact on investors) and second part presents the previous studies focused on fundamental differences between U.S. GAAP and IFRS. Findings: This paper is based on review of literature that present the differences between U.S. GAAP and International Financial Reporting Standards (IFRS). As per the studies done, U.S. GAAP contains more detailed, specific requirements than IFRS. In some instances, IFRS does not contain any corresponding guidance and, in others, IFRS contains higher-level or general guidance that is not directly comparable to the U.S. GAAP requirement. Originality/Value: This paper findings are based on 27 research papers only. As accounting standards are changing due to change in current economic situations, there is a large scope for the future studies based on U.S. GAAP and IFRS differences and impact of those difference on the investors.

Does Restricting Managers’ Discretion through GAAP Impact the Usefulness of Accounting Information in Debt Contracting?

We examine whether restricting managers’ discretion through GAAP impacts the usefulness of accounting information in debt contracting. We find that under more restrictive standards, lenders make more non-GAAP modifications to GAAP-based performance measures, suggesting that restrictions of manager’s discretion reduce the usefulness of accounting information. We perform two additional analyses to enhance identification. First, we examine the relation between the exclusion of specific non-recurring items from contractual definitions of earnings and the number of restrictions in the GAAP standards that apply to each specific item. Second, in difference-in-differences analyses around standard changes, we examine whether the propensity to exclude items varies with changes in restrictions of the related standards. We find consistent evidence in both of these analyses. Moreover, we find that restrictive standards are also positively associated with loan spreads but significantly less so when lenders adjust GAAP numbers in loan contracts. Overall, by focusing on lenders as important users of financial statements, this study improves our understanding of the impact of GAAP restrictions on the usefulness of accounting information.

Using Language Processing to Evaluate the Equivalency of the FASB and IASB Standards

ABSTRACTThe passage of the Data Transparency and Accountability Act in the United States Congress will necessitate that government agencies provide more data in transparent formats. The issue of how to interpret such data remains an open question. The accounting profession has continued to struggle with common formats since the inception of balance sheets and income statements. The original FASB Conceptual Framework was developed to help construct consistent GAAP standards. XBRL was developed to provide a consistent representation of the data contained in financial statements and other financial documents. This research explores the use of two codifications (U.S. GAAP and IFRS) of GAAP standards in both their syntactic representation through XBRL taxonomies and their semantics through their authoritative references back to their own standards and codification. The research uses language theory to model the codifications in terms of the strings used to represent lexical content in the financial statements and to provide a systematic mapping to the semantics of the related XBRL specifications. The immediate objectives of this research are to provide a means to compare the semantic richness of U.S. GAAP and IFRS and to determine the consistency of either standardization with respect to the emerging shared Conceptual Framework. Ultimately, to the extent that the system is able to model both the syntax and the semantics of the financial statements, it could provide a baseline on which to consider assurance over parts of the financial statements, rather than over the financial statements taken as a whole.

IMPACT OF ADOPTION OF IFRS IN THE CONSOLIDATED STATEMENTS OF BANKS LISTED ON THE BM&FBOVESPA

The study investigated the impact of adopting IFRS on the representation of the situation equity, economic and financial banks listed on the BM&FBovespa. The sample collected 18 banks that reported its consolidated financial statements of 2010 in the IFRS and GAAP standards. Were observed significant differences in indicators Liquidity and Credit Portfolio Quality, indicating that the financial statements prepared under IFRS indicate less liquidity and credit quality of the portfolio compared to that evidenced by statements in BR GAAP. From the standpoint of equity, it was found that the financial statements in BR GAAP are more conservative than the IFRS financial statements.

Convergence of Consolidated Financial Statements Regulations: Are we there Yet?

The official debut of the convergence process between the IFRS and the US GAAP standards took place in 2002, after IASB and FASB signed the Norwalk Agreement, a memorandum of understanding in which both parties stated their engagement to develop high-quality and compatible standards, with the ultimate goal of a single set of high-quality global accounting standards. The 2002 Norwalk Agreement was reinforced after the publication, in 2006, of a new memorandum document, The Roadmap for Convergence, in which the two regulatory bodies stated their short-term and long-term objectives for the convergence process. One of the long-term convergence objectives regarding the consolidated financial statements, materialized in joint projects – Business Combinations and Consolidations – can be considered completed after the issuance of the new versions of IFRS 3 in 2008 and of IAS 27, IFRS 10, IFRS 11 and IFRS 12 in 2011. But are we there yet? Given that the accounting convergence process had become, for some time now, one of the most debated and challenging issues for practitioners, regulators and researchers, we show the same special interest in the research undertaken. The main purpose of this paper is to establish the level of convergence between the two most representative sets of accounting standards applicable to entities in the private sector. Unlike previous studies carried out on this topic, which measure the general accounting harmonization for private sector, our study focuses on a specific issue, namely the formal accounting harmonization between IFRS and US GAAP regulations regarding consolidated financial statements. The research methodology used for achieving our objective was based on some statistical tools, such as correlation and/or association coefficients. The result reveals that IFRS have substantially converged with US GAAP, at least in the area of consolidated financial reporting, but there still exist some differences between the two referentials.

Adoption of IFRS in Brazil and the Consequences to Accounting Education

ABSTRACT:Brazil is a rare case of a complete adoption of IFRS, not only for consolidated financial statements, but also for the individual ones. Very few countries dared to converge their accounting standards toward IFRS in the company-only financial statements, probably afraid of the tax or dividends impact. Brazil made the ambitious move, changing the Company law and altering the income tax legislation in such a way that a safe path was built to bridge from the old BR GAAP standards to IFRS.

Does Adoption of IAS/IFRS Deter Earnings Management?

Prior research provides mixed evidence on whether the transition to IAS/IFRS deters or contributes to greater earnings management (earnings smoothing). The dominant explanation for the conflicting results is self-selection. Early voluntary adopters had incentives to increase the transparency of their reporting in order to attract outside capital, and, therefore, earnings management (smoothing) went down after adoption, while those firms that waited until IFRS adoption became mandatory in EU countries lacked incentives for transparent reporting leading to increases in earnings management (smoothing) after IFRS adoption. We argue that IAS/IFRS standards changed substantially from the early voluntary adoption period to the mandatory adoption year (2005). Compared to earlier IAS/IFRS standards and many countries’ domestic GAAP standards, we maintain that the IFRS standards that went into effect in 2005 provide greater flexibility of accounting choices because of vague criteria, overt and covert options, and subjective estimates that are allowed under these principle-based standards. We argue that this greater flexibility coupled with the lack of clear guidance on how to implement these new standards has led to greater earnings management (smoothing). Consistent with this view, we find an increase in earnings management (smoothing) from pre-2005 to post-2005 for Early Adopters and Late Adopters in countries that allowed early IAS/IFRS adoption, and for Mandatory Adopters in countries that did not allow early IFRS adoption. Our major findings hold after eliminating firms more likely to have mechanically-induced increases in earnings smoothing properties as a result of IFRS adoption and across countries with and without concurrent improvements in enforcement of accounting standards. We also find that firms from countries with less (more) local GAAP flexibility exhibit greater (less) evidence of increases in earnings smoothing following mandatory adoption of IFRS standards in 2005. Collectively, our results suggest that the increased flexibility of new IAS/IFRS standards and lack of clear guidance in implementing these standards are major factors that explain earnings management (smoothing) changes around IFRS adoption.

Due diligence in a new era of accountability

AbstractFollowing the scandalous collapse of Enron, WorldCom, and other firms, we entered a new era of accountability—which brought us the Sarbanes‐Oxley Act (SOX) in 2002. It ushered in stricter standards for corporate conduct and governance.But now we're experiencing a second wave of accountability and reforms. Its highlights include the election of President Obama and his commitment to transparency; the failure of banks and automobile companies; the Madoff scandal; the severe global recession; and mistrust of Wall Street.All this has triggered an increase in staffing at the Securities and Exchange Commission. Many see vigorous enforcement actions and new GAAP standards ahead.But how does this second new wave of accountability affect merger‐and‐acquisition (M&A) due diligence? And how can your firm avoid its dangers? The authors take a close look at how to operate in this new environment. © 2009 Wiley Periodicals, Inc.