International Financial Reporting Standards Essay

International Financial Reporting Standards - Essay Example It includes the diversification from GAAP to IFRS which have to be adopted by the US in order to compliance with the Security and Exchange Commission, also provides knowledge why and how conversion enhances the reporting quality. The framework for the preparation and presentation of the financial statements adopted by the International Accounting Standard Board (IASB) is known as International Financial Reporting Standard, IFRS provides a procedure norms, rules and regulation that how to prepare and present the financial statements, what data must be included and what should be omitted. Most of the standards which come under the umbrella of IFRS are previously known as the International Accounting Standard (IAS). IAS was issued between 1973 and 2001 by the International Accounting Standard Committee. While General Accepted Accounting Principles (GAAP) is also a standard framework of financial reporting, it includes the standard, convention, rules and regulation an accountant must follow in recording and summarizing transactions and in the making of financial statements. IFRS and GAAP have some similarities and differences which we will discuss later. IAS 2 elaborates the accounting treatment for inventories. The issue which arises often in this standard is when we intend to recognize the cost as an asset and carried forward it until related revenues are recognize. The cost formula assign for the cost of inventory is also prescribed in IAS-2. Basically there are two main methods of inventory valuation. i) First In First out (FIFO) which means the organization has to utilize its stocks which they have first in line. ii) Last In First out (LIFO) which means organizations have to use the last purchase stock first. Generally FIFO is for low Cost of Good Sold (COGS), high ending inventory so ultimately the bottom line will show a high net profit, while as far as LIFO is concerned, is for high COGS , low ending inventory and low net profit. Darrell Mullis and Judith Orloff elaborates practical examples of FIFO and LIFO in their book namely "The Accounting Game" which shows how FIFO leaves a positive impact over the net income and LIFO condensed the net profit or the profit after tax (PAT), Usually Companies uses LIFO method in order to save the Taxes. Differences are there between IFRS and GAAP, like adoption of LIFO method in IFRS is prohibited while under U.S GAAP, companies have the choice between LIFO and FIFO method. Some sort of similarities are also there between IFR