The GAAP vs. IFRS/IAS Accounting Standard for Impega Plc
To the board of Directors of Impega Plc
It had been audited the accompanying statement of reconciliation to the International Financial Reporting Standards (IFRS) for the Impega Plc. which comprise the income and loss of the company for the year 2007. The said IFRS statements of reconciliation are primarily based on the consolidated financial statement which had been prepared according to the regulations of UK and governs the preparation criteria which audited in the past. The audit had conducted with the accepted auditing standards in London and according to the standards that had been performed and planned in obtaining the necessary information. The IFRS has the reconciliation statement have the prepared in all of the material aspects according the principles and criteria of the accounting standards.
The Issues that must Tackled in the Change
The change that plans to implement is open for the improvement of the existing arrangements. In the proposal, the company needs to have the efficiency on the enhancement of the balance sheet as well as the structures of its capital structures. In this regard, the company will have the assurance for the continuing in returning the capital to pay dividends and to the shareholder. Nevertheless, this will have the high risk and costly for the business. It also given that the changes in the accounting can have the potential consequences whether in social, economic and political actions. The standards of the financial reporting and accounting are all needed as the mechanism for the standards. It had been also known that this can have the sequential effects as the process and belief preparation of the financial report on decision. There will also be the effects on the economic cost and to the out of pocket costs. Though for the company can increase the recorded liabilities and recorded increase, the changing of the accounting standards can have the stem for the enhancement of utility of the resulting information in serving the users. For the changes of the financial standards can be essentially affects the function of company and economy due to the allocation capital markets that are highly dependent for it’s heavy, understandable, concise, and wide disclosure of financial information. The change so of the financial reporting standards can improve the credibility for the financial reporting of the public confidence for the allocation of resources and financial market. This will also increase the utility of the user gains that are taken from the improved accounting information that includes in making better selection. The encouragement of the efficiency in resulting accountability for the shareholders as well as to the lenders will develop. Generally, despite the consequences that arise for the changing of financial reporting for Impega Plc, it is therefore have the economic benefits such as the practice of fairness, public interest, and comparability (Brown, 2008).
Generally, to make the company consistent in its reports of financial principles and practices but there are also room for betterment which can prohibit for the change in the accounting principles and standards that can be use by the company in reporting of ist financial statement. The company can also be aggressive in the choice of its application of the accounting standard and principles for the anticipation of the amounts. The Impega Plc can have the optimistic assumption regarding the future operation of the company. The changes for the company’s financial reporting standard can affect the amount of the income taxes that the Impega Plc that needs to pay. Additionally, it can also appear the period of adjustment in placing the sufficient value for the financial statement (Hermason, n.d., p. 235). This will also brought the new directive that is required in more comprehension for the annual report that must be include in the fair review for the performance and development of the business of company as well as its position. As issued by the Financial Accounting Standard Board (FASB), the Impega Plc can adopt the new accounting standard which can result for the new principles of the firms as well as discretionary changes from the current yet acceptable accounting principles. This can include the switch for the completion of the contract method in the accounting in long-term contracts in the method of percentage-of-completion. The changes into the new accounting standard can enhance the consistency on the same company across the comparability and standard for the companies in using the International Accounting Standard (Schexnayder, C et. al, 2003, p. 307).
IFRS/ IAS affect GAAP for Impega Plc
The Generally Accepted Accounting Principles (GAAP) is the broad and accepted set of rules, procedures, standards and conventions for the reporting of the financial information which had been established by the Financial Accounting Standard Board. This also provides the standards for the company in comparing and judging the financial data and its presentation as well as the limit for the freedom of directors in showing the not real approach with the aide of accounting. This implies that the auditor or the accountant needs is currently following the standards of GAAP that needs for the financial organizational data and accepted by the investors, the tax authorities, and the lenders (Business Dictionary, 2008).
The International Account Standards or IAS or it is called in the past as IRFS is the one that offers the rules and guidance in the interpretation of the accounting principles which includes the impairment of the assets, measurement and recognitions of the assets. This is the set of the high quality, enforceable, and understandable in the standards of global accounting. The GAAP is still considered to be the generally accepted principle of accounting wherein in have more rules as compared and principal based. On the other hand, there are still some of existing drives the moment in amalgamating the two rules in making the interpretation of the account easier for the shareholders or to the investors yet it is difficult though considered it to be the best. There are differences that arise for these standards wherein some of the countries still cannot have to produce the set of the accounts if the company has the turnover for the certain number of millions (McClure, 2003, p. 2).
For this specific proposal, there will be a continuous involvement for the transferors of the financial instrument in the company wherein the instruments are transferred to the transferor that must be continuing in recognition for the financial asset. This also means that the IFRS/IAS does not repeat the explanations and definitions of the certain fundamental concepts which are defined in the framework which can help the auditors in forming the opinion. This means that the adoption will have the impact on the company’s recognition and reporting of the measurement in relation to the reporting and consolidation process which primarily depends on the GAAP which currently in use. One of the changes that can occur is the use of extended principles of fair-value and not the historical cost. The concept of the fair values and the present value are mainly focused on the expected or to the current cash flow streams and to the historical purchase whereas there will be requirement on the segment reporting and to the geographical location (Microsoft Business Solutions, 2004).
Difference of the IFRS/IAS and the GAAP that Apply to Impega Plc
In the description of IASC which does not set the GAAP and have no legal authorities over GAAP can be thought as merely the very influential group for the people in making the accounting rules which needed by Imperga Plc. If the IASB is setting the new accounting standard, most of the countries are adopting the standard or interpreting it and fit in every accounting standard of the country and in turn influence the GAAP for every particular country (Investopedia, 2008).
The differences of the GAAP which is currently using by the company and the IFRS as the proposal standard have many differences. First dissimilarities is the general preparation for the consolidated financial statement which is required by GAAP yet the in IFRS is also required but there is exemption from the preparation of the financial statements in the parent company which is a wholly-owned subsidiary or owned partially by the subsidiary if some of the conditions were not met (Sale, et. al., 2007, p. 293). For the preparation of the consolidated financial statement in reporting of the dates of the subsidiaries and parents have also difference for the standards as in the GAAP will have the significant effect on the occurrence of the reporting dates that used in the disclosure of the financial statements wherein the wherein at the IFRS the different dates are used and adjusted in the financial statement. For the presentation of the non-controlling of the minority interest were presented by GAAP outside the equity on the balance sheet and the separate component in the equity on the balance sheet for the IFRS. For the equity methods of investments, the FAS 159 can give the entities for the in the option accounting for the fair value option of financial liabilities and financial assets. In the investment of equity methods, the management does not have to elect the use of the equity method and fair value that is required. On the other hand, in the IAS 28, it requires the investors except the venture capital organizations, unit trust and the mutual funds as well as the other similar entities in using the equity method for accounting in the investment of the consolidated financial statement. There would be the permits o the use of the IAS 31 on the consolidation or the accounting equity method (Ernts and Young, 2008).
The intangible asset standard can also have the differences for the two standards of financial reporting. In the GAAP, the development costs are the expenses that are incurred if its no9t addressed by the separate standard and for the external use, they are related to the computer software which is in accordance to the specific criteria of FAS 86. For the development costs are capitalized when the economic and technical feasibility for the project which can be demonstrated with the specific criteria and there are no computer based guidance that supported the cost development. In GAAP also, the revaluation is not permitted yet the promotional and advertising costs are incurred or expensed when taking place the advertising cost for the fist time which is a policy choice. The IFRS has the fair value revaluation for the intangible assets aside from the goodwill which is allowable in the alternative treatment and the promotional and advertising costs are the expensed that are being incurred. The other differences also is that the GAAP has the non-controlling interest that is being measured using the fair value and goodwill whilst the IFRS have the choice for measuring the non-controlling interest either in the fair value which includes the goodwill and the proportionate share for the fair value of the acquiree’s goodwill and net identification assets (Ibid).
In general, taking into the account of IFRS make more principles-based standard yet have the limited application guidance while the GAAP have more standards of “rule-based” and more specific guidance. In the IAS 2, the measuring for the net realizable and to the inventory value are permitted in IFRS but only to the producers and forest products as well as mineral ores and broker dealers. In the GAAP, it is also similar but it is not only restricted to the broker-dealers and to the producers. For the GAAP, the classification for the paid in the cash flow statement and to the interest received needs to be classified in the operating activity while in IFRS it may be classified either at investing, operating, or the financing activity. In the IAS 8 or the change for the method of depreciation on the existing assets is the prospective for the change of estimate in IFRS and change in the accounting policy for the GAAP. The change for the IAS 12 or the classification of the deferred liabilities and assets is always non-current for the IFRS while for the GAAP, it is split at the midst of non-current and current components. In addition to IAS 12 or the change in the recognition for the tax benefits that are related to his share-based payment which is credited only to the equity for the IFRS while they are credited in the deferred tax in the GAAP. In measuring derivatives, in the IFRS, the entire derivatives are measured through the aide of fair value except the derivative that is linked and bust be settled to the delivery of the unquoted instrument of equity whereas the fair value are not reliable for measurement of cost and GAAP are measured n the fair value yet it is not identical to the IAS 39 (Deloitee Touche Tohmatsu 2008).
The Impacts of the Differences for the year 2008 – An Analysis
The Table Below Shows the Statement of Reconciliation in the International Financial Reporting Standards (IFRS) in the Impega Plc. which shows the impact of IFRS to the company.
The Consolidated Financial Statement of Impega Plc at December 31, 2004
For the Impega Plc, there will have the significant affect IFRS since it is considered to have the international activities. The impact for the application of IFRS 3 which is the increase in the total net income in the previous year with the 1,569 millions of euro that of which 1,527 had been attributable in the parent company which is due to the elimination and amortization. For the scope of consolidation, this involved the consolidation of for the TIM shares that are classified in the current assets. The special purpose consolidations are issued on the subscription to the investors of third party. This are also classified as the company for the wind-up. The impact on the accounting treatment is the increase of the equity’s total shareholders that owes in the consolidation of the TIM shares for about 147 million and the increase in the net financial indebtedness that owes the TISV. This can be compared on the end of the year which has the increase in the total shareholder equity of 79 million that mainly attributable in the consolidation of the TIM that refers to the option of the increase in the net indebtedness of 729 million that attribute on the consolidation of the TISV. With regards to the factoring transactions, the impact shows the increase on the net indebtedness for 351 Euro which attribute on recording of the short term with the year end increase of the indebtedness for about 760 million yet attributable in the short-term financial and increase in the trade receivable. The sales and leaseback properties are the sale properties that had been carried out by the Impega Plc for the past years and recoded according to the method of finance on IAS 17 for its present value. In the reserves of the future charges and risks are recorded in the financial statements that are in accordance to the company. For the bonds, there have been the decrease in the net financial indebtedness for 423 million while increase on the total equity of shareholders of 486 million euro. On the other hand, the end of the year has the decrease in the financial indebtedness of 283 million and increase in the total shareholders’ equity. The derivatives of the financial also have the impact of the changes made wherein under the IAS 39, it is mandatory in recording the financial instruments. On the first year, there is an increase in the net financial position for 29 million euro while decrease in the total shareholders equity of 64 million right after the tax that affect by 20 million euro. On the year end, there is an increase in the financial indebtedness of 304 million for the cash flow and decrease in the shareholder of 284 million euro that is attributable in the parent company which has the negative impact of 18 million in the pre tax income. The treasury tax will also have the impact of the changes that had been made with the different accounting treatment on the total shareholders equity for the first year while at the end of the year it has the 394 mullion euro which is the reversal of the stock in assets in the same amount. For the recognition of the revenues, there is the decrease in the total shareholders equity for about 321 million wherein the 293 is the attributable in the parent company prior to the positive effect of tax of 109 million. The end of the year has the equity of shareholders of 533 million of euro with the pre tax effect of 180 million of euro it has decrease of 209 million euro which also has the 70 million of before positive tax. The differed asset has the increase in the total shareholder’s equity of which is 240 million and has the recognition of deferred asset taxes the same amount while at the end of the year in will have the total shareholder’s on its equity of 190 million euro which has the recognition on the asset for the deferred taxes of 205 million of euro and the negative impact of 55 million of euro which is the net income.
The Analysis between the Two Accounting Treatments
Regardless of their similar movement and heritage towards the aspect of convergence, their differences can be magnificent and significant between the IFRS and to the GAAP. These differences can have the magnificent branching of the results. This implies that the special are must be exercised so that the drafting for the legal instruments needs to tie up for the financial statement of the company. The issues can arise if it is not avoided. The covenants of the loans can also be associated to the agreement of financing which are present in the classic scenario. In had been written at the IAS 32 and under the IFRS are all required for the instruments of convertible debts so that they can split their component of equity and their liability upon the time of issuance. In the standards of GAAP, the convertible debts are all instruments which are to be treated as liability except to the warrants of detachable. In line with this, the debt-to-equity ratio followed the default provisions for the agreement of finance which means that the net result of the GAAP and the IFRS is the risks for the lenders that are enhanced and the risk for the borrower is was default and reduced. When it comes to the agreement of competition, the bonuses of the senior officer are primarily base on the benefits and can also be based on the ordinary income. In the GAAP, the extraordinary items are al permitted though restricted to the unusual, restricted, rare, infrequent item which can affect the loss and profit. The IFRS which is under the IAS 1 whereas the extraordinary items need not be separated out and they must be included in the ordinary income. In the aspect of acquisition, if the transaction will take place, the structured can be influence by the GAAP and to the IFRS. This also implies that the certain transactions can be presented on the very different characteristics which are under the IFRS as compared to the GAAP. Therefore, for the purpose of counseling the clients, there must be the practice on the special care in exercising for the change in the accounting standards.
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Credit:ivythesis.typepad.com
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