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In spite of the philosophical and cultural differences based on methodology between IFRS and GAAP, there are various measures that have been taken towards the convergence of the two standards. The measures have been observed to produce successful results despite the many challenges incurred. These two standards continue to form collaboration on the improvement and development of new and merging of the existing standards (Lindahl & Schadewitz, n.d.). These innovations are aimed at improving things to do with revenue recognition as well as those that touch on business combinations the performance of businesses financially.

Discussion and analysis

Both FASB and IASB have designed new guidelines that define fair value more clearly. This is aimed at ensuring the disclosure process is comprehensive. They also go ahead to unify the measurement framework of fair value. The information required for disclosure has also been unified .The differences observed in the two approaches includes; measurements of investments by the investment companies, there is no guideline provided by IFRS on the accounting of investment companies. There is also a difference in liability deposit measurement and disclosure on a net basis of various level 3 measurements (Elliott & Elliott, 2008).

Component depreciation is where by an asset is separated into several components and the various components are depreciated individually. Each of the components is depreciated separately at different rates. For example a building can be divided into walls and the roof. Component depreciation is applied when a previously acquired asset is improved and there is there is proper justification to support component depreciation. Component depreciation can also be applied in situations when the various different parts of an asset are acquired differently (‘Accounting, Business & Financial History: 13TH Annual Conference’, 2001).

Revaluation of a plant asset is the process by which the carrying value of an asset is increased or decreased in case there are key changes in the fair value of that particular plant asset. Revaluation of plant assets if important as it helps to update the books on the fair market value of plant assets. Revaluation is also an important measure that can be taken to help in making the decision as to whether to make investment in a business. Revaluation should be applied when an asset is about to be sold (Elliott & Elliott, 2008). In case of such a situation then revaluation is necessary in preparation for the sale of the asset in question.

According to IFRS, a contingent liability can be described as a probable obligation that occurs from past happenings and whose existence can only be confirmed by manifestation or non-manifestation of one or more future occurrences which are not in control of the entity wholly (Elliott & Elliott, 2008). A contingent liability should not be recognized. Contingent liabilities should be disclosed unless there is a remote likelihood of outflows of resources exemplifying economic benefits (Lindahl & Schadewitz, n.d.). Good examples of contingent liabilities are product warranties and outstanding lawsuits.

The difference between the development cost account and the development expense account is that those development expenditures recorded in the development cost account are used in a business and will continue to be recorded as an asset in the balance sheet while those expenditures recorded in the development expense account are not used in the business and are recorded s liabilities (Elliott & Elliott, 2008). Companies are able to choose the appropriate classification depending on whether that particular expenditure leads to acquisition of a depreciating asset or not (‘Accounting, Business & Financial History: 13TH Annual Conference’, 2001).

Accounting for liabilities is almost similar under both the IFRS and GAAP settings. The similarity lies in that both the standards require that liabilities be grouped into either current or non-current (Elliott & Elliott, 2008). The two approaches also have similar definitions of liabilities. There is a difference in the recognition of losses where under the GAAP the loss must be probable for a liability to be recognized and probable is defined as likely to occur. On the other hand, in IFRS, a loss must be probable to occur and here loss probable is described as more likely thus a probability of more than 50% (Lindahl & Schadewitz, n.d.).

Conclusion

In conclusion, there is great importance attached to the formation of a uniform accounting standard. The various different concepts used in the different standards are also integral parts in realizing the goals of accounting. The different ideas must be understood well and the main points of each considered.

 

 

References

Accounting, Business & Financial History: 13TH Annual Conference. (2001). Accounting History,6(1), 128-128. doi:10.1177/103237320100600112

Elliott, B., & Elliott, J. (2008). Financial accounting and reporting. Harlow: Financial Times Prentice Hall.

Lindahl, F., & Schadewitz, H. US GAAP and IFRS: How Close is ‘Close Enough’?. SSRN Journal. doi:10.2139/ssrn.1413163

 

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