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The importance of the adoption of ifrs
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Introduction
Generally accepted accounting principles (GAAP) were first established in the 1930s in response to the historical stock market crash in 1929. Nowadays GAAP is influenced by several organizations including the Financial Accounting Standards Advisory Council (FASAC), Securities and Exchange Commission (SEC), American Institute of Certified Public Accountants (AICPA) and the Internal Revenue Service (IRS). Publicly trade companies are required to follow GAAP in the United States. Many other countries have their own set of accounting principles. In today’s global business climate, many businesses need to grow in order to survive. A small business may choose to merge with a bigger another company, and a large company may want to acquire a small company in order to expand in certain condition. More and more international mergers and acquisitions are happening nowadays. But how would they adapt to the ever-changing accounting standards in different countries? There are complications of consolidation of the financial statements when companies make merger/acquisition deal. To be able to adapt to the new business environment, GAAP is also making changes. International Financial Reporting Standards (IFRS) were first developed by the International Accounting Standard Board in 1973. IFRS gained its popularity quickly. Nowadays, over 100 countries recognize IFRS. As the biggest economy in the world, United States (United Nations 2012); however, did not plan to implement IFRSs until 2011. In this paper, we will discuss the possibilities of future of convergence between U.S GAAP and IFRS.
Acquisition Methods
A company can complete an acquisition by multiple ways-statutory merger, statutory consolidation, asset acquisition or st...
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...AAP is rule based, while IFRS is principle-based (Carmona & Trombetta, p.455). The International Accounting Standard Board (IASB) developed IFRS believing it is the best set of principles to reflect a company’s financial situation in the most accurate, reliable and transparent manner (Bozkurt p.16). To be able to provide the most transparent financial reports to investors, accountants need to be able to gather the accurate information and follow standards that will allow them to do so. Many countries are doing the same business in different countries in this economy. However, they can produce different financial statements based on the accounting principles they use despite they might have similar financial situations. There are many different areas between GAAP and IFRS. In 2011, SEC’s office of the Chief Accountant issued a report identifying the differences.
Cost cutting, discontinuation of product or services ,technological changes, and consolidation due to mergers and acquisitions are commonly legal ac...
Gaughan, P. A., 2002. Mergers, Acquisitions, and Corporate restructuring. 3rd ed.New York: John Wiley & Sons, Inc.
The purpose of this paper is to attempt to recompile information about the merger of two corporations; one of many taking places i...
In the world of international finance there are two major accounting systems; GAAP, which stands for Generally Accepted Accounting Principles, and IFRS, which stands for International Financial Reporting Standards. The United States prefers GAAP while the European market, as well as many other countries, prefers IFRS. By 2015 the Securities Exchange Commission is anticipating a total transfer to IFRS in the United States. Though the differences between GAAP and IFRS are few, they could affect accuracy of financial reporting throughout the world. It is important to understand the differences and similarities between both GAAP and IFRS if one is to globalize ones market (Logue).
Mergers and acquisitions in financial services business area are very common and result in consolidation of the business unit. Acquisition is beneficial for all sides involved and Santander's acquisition of Abbey National of the UK is an evidence of this. Abbey has a major position in the United Kingdom mortgage market. Its strong distribution network represents for Banco Santander and Abbey shareholders a valuable opportunity: application of Banco Santander's commercial and technological practices to Abbey's banking operations.
Expanding sales to foreign countries can offer a Multinational Company (MNC) higher profit margins, unique products, and technological advantages. One of the major issues that an MNC will face is analyzing foreign financial statements, due to the diversity of accounting guidelines across the world. It’s imperative that companies that decide to go international learn and understand the tax laws and guidelines of other countries, in order to minimize the accounting issues involved in business activities. One of the top coffee producing companies in the world, Starbucks Corp has grown to be a powerful MNC. Their investment in foreign operations and foreign trade requires them to understand international accounting concepts and international financial reporting standards (IFRS). In this report, GAAP concepts used by Starbuck’s will be compared to IFRS.
Companies merge and acquire other companies for a lot of strategic reasons with different degree of success. The success of a merger is measured by whether the value of the acquiring firm is enhanced by it. The impact of mergers and acquisitions on organization can be small and big in other cases.
An acquisition can be defined as the consolidation of companies or assets. This is basically when one company is purchased by another and as a result, no new company is formed. There are several different drivers of a successful acquisition; these comprise of due diligence, strategic drivers, and aligning cultures.
Introduction Mergers and acquisitions are some of the popular techniques that businesses employ to gain a competitive advantage (Kluyver, 2010). A merger refers to an agreement that allows two companies to combine their resources in a bid to dominate the market. An acquisition describes a situation where one corporate purchases another company as part of its overall strategy to conquer the market. Normally, the company being acquired is small than the purchasing corporation.
Mergers and acquisitions immediately impact organizations with changes in ownership, in ideology, and eventually, in practice. There are multiple reasons, motives, economic forces and institutional factors that can, taken together or in isolation, influence corporate decisions to engage in mergers or acquisitions. The financial risks of merging with or acquiring an organization in another country and how those risks can be mitigated are important issues for corporations to conduct research on. This paper will examine the sensible and dubious reasons for mergers and acquisitions and the benefits and costs of the cash and stock transactions.
When entrepreneurs plan their business future they will consider how they can increase their business size or profit in a short period. Entrepreneurs may consider growing their business or company by using a merger or an acquisition. These methods can be a speed up tool and a short cut to enlarge their business. (Burns, 2011) Also they can reduce competition, make it easier for entrepreneurs to think about the market and product development and risk reduction. Furthermore, some lesser – known companies can improve their firm’s image and market power by using merger and acquisition with larger firms. However, there may be risks associated with merger and acquisition related to lack of finance and time. (Burns, 2011) This essay will discuss more deeply the advantages and disadvantages of using mergers and acquisitions, showing how it can affect firms and market with the case study.
GAAP is exceptionally useful because it attempts to regulate and normalize accounting definitions, assumptions, and methods. Because of generally accepted accounting principles one is able to presuppose that there is uniformity from year to year in the methods that are used to prepare a company's financial statements. And even though variations might exist, one can make realistically confident conclusions when comparing one company to another, or when comparing one company's financial statistics to the statistics for the industry as a whole. Over the years the generally accepted accounting principles have become more multifaceted because financial transactions have become more intricate (Accounting Principles, 2011).
The significant effects are time, distance and comparability of financial statement. The financial statements or the capital markets over national frontiers might be changed by time and distance aspects. Therefore, accountancy practices should be applied the development of new information technology for dealing with the distance aspects and improving the problem in different of time when working over national frontiers. Moreover, the methods in accountancy practices have changed from traditional approach to the active method. Furthermore, the globalisation of accounting standards is established as a common accounting language that is effective across national
Small, medium enterprises (SMEs) are largest types business in the world, making up an estimated 99.7% of business. According to the Federation of Small Businesses (FSB) there are nearly five million existing businesses in the UK as of 2013. SMEs are a key contributor towards economic growth in terms of creating more employment, stimulating innovation and promoting social unity. SMEs are responsible for 47% of private sector employment, yet despite such global present there is still no agreed definition of a SME (Storey 1994). Bolton (1971) attempted to define them through a statistical and economic analysis. Classifications which are based on criteria, such as number of employees or annual turnover, however, do not remain consistent across borders. Given their size, smaller companies tend to be more intent on survival rather than expansion and profit maximisation. Smaller sized firms have always felt that the current reporting framework for IFRS is tailored more for the needs of larger companies and that the heavy cost burden it imposes upon them may not be entirely justified. In response to these concerns, the IASB subsequently issued the IFRS for Small and Medium-sized Entities (IFRS for SMEs) in July 2009. This standard offers an alternative framework which can be adopted by entities in place of the already extant full set of IFRSs or local national requirement standards.(Holt 2010) This essay will critically evaluate the impact of the IFRS for SME’s and whether or not it stands as the most suitable framework available for SMEs to use.
The globalization of business has resulted in the need for compatible accounting standards that can be used internationally for financial reporting. As a result, the International Financial Reporting Standards (IFRS) were developed by the International Accounting Standards Board (IASB) to unify the various financial reporting methods and create a single accounting standard which can be applied to any financial statement worldwide (Byatt). The global standardization of financial reporting will increase the readability and enhance comparability of globally traded companies’ financial statements, without the need of conversion or translation. There are a few main differences between the International Financial Reporting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (U.S GAAP). The increasing recognition and acceptance of the International Financial Reporting Standards by accounting professionals in the United States, will affect the way in which the U.S will record financial statements in the future.