Differences Between IFRS And U.S. GAAP Homework Essay Sample

Investment is one of the core spheres in accounting, therefore, many systems of standards are suggested for implementation. However, the two most popular ones are the International Financial Reporting Standards (IFRS) and the United States’ Generally Accepted Accounting Principles (GAAP). Over the last years, there has been a number of unsuccessful attempts in the integration of those systems, therefore, it is obvious that they have something in common. However, in the sphere of investment, some differences make them unlike, therefore, companies have to estimate the benefits and losses of implementation of each system and choose the appropriate one.

The standards related to investing in both systems are related to the concept of fair value that is depicted in the IFRS 13 and ASC 820 acts. Those concepts are almost similar in those two systems, however, the differences lie in the estimation rules prescribed in other standards. For example, IFRS and GAAP vary in the issues concerning the investment property. The major difference is in the fact that the U.S. GAAP does not have the term “investment property.”

According to the American standard system, the assets are whether classified as earmarked for sale or fixed assets intended for rent. The investment property includes such objects as the ground for resale or utilization in a long-term outlook, buildings as the company’s property which is leased on contract, or any other immovable property. Here, according to the IFRS, a great role plays the aim of possession of the property. For example, if it is utilized for manufacturing or selling of goods or services, administrative goals, or getting profit from operating activities, the objects cannot be considered as “investment property.” Under this term are counted only the objects which are likely to bring economic profit, or if the properties’ cost can be evaluated. The property as mentioned in the IAS 40 is first estimated according to the prime cost including purchase costs. Then the valuation of the “investment property” is fulfilled with the help of various models such as the cost model or the fair value model. However, this model of “investment property” is not implemented in the U.S. GAAP, instead, it is classified as an asset or real estate.

The implementation of the IFRS began in the 20th century, however, new standards are constantly developed and edited according to the changes in accounting. According to Rahim (2021), investment companies start paying more attention to the International Financial Reporting Standards as major changes in US financial reporting are expected in the next several years. The author states as well that even US companies start choosing the international system instead of the American one because it is not industry-specific. However, according to the start of the utilization of the two standard systems in some firms in the European Union, significant differences across the GAAP and the IFRS were not found. Rahim (2021) states as well that some economic consequences related, for example, to the liquidity or cost of capital, were shown after the adoption of international standards. It is not obvious which standard system is preferable, however, some scientists explain that the IFRS is more capital-market oriented.

The IFRS is more relevant to investors as it shows more respect to data and gives more attention to the prevention of disclosure. More and more firms not only in the United States but worldwide start choosing the International Financial Reporting Standards system, however, the American GAAP is popular as well but mostly among American companies. However, the integration process between two systems was stopped because of some disagreements, and new changes made the difference even bigger.

Reference

Rahim, J. M. S., & Twana, Y. A. (2021). A comparison of IFRS and US GAAP with potential effects on investment analysis. PalArch’s Journal of Archaeology of Egypt/Egyptology, 18(4), 6177-6187.

Forecasting And Time Value Of Money

Time value of money (TVM) is a valuable instrument that helps comprehend the value of a currency in relation to a given period. It is a method frequently applied by investors to understand how the current worth of money compares to that of the future. The time value of money would significantly impact the decision to invest in the local soccer team since with it, and I will have the permission to decide what I want to do with money.

Time Value of Money helps comprehend the best decision to take when taking into account earnings, interest, price increases and risk (Bracker et al., 2018). I will be able to understand the financial consequences of the decision I make, and it will help me be cautions with my resources when I need to invest. I will have to reflect on various aspects before finally making the investment decision. I will need to have a sensible rate of return for me to benefit from the investment.

There is a relation between TVM and the prediction of profits and losses in an organization. The present and future value concepts are helpful in the forecast since the present value dictates the worth of future cash flow in the current value. It deducts the future cash flow to the current time, and with this, one can know whether to anticipate profit or loss in the future. The cash flow attained at present can also be used in calculating the worth in the future (Marty, 2017) These two concepts help in making sound investment decisions with a possibility of profits in the future. TVM is essential in making selections between investment values that result in earnings at changing times.

References

Bracker, K., Lin, F., & Pursley, J. (2018). Time value of money. Business Finance Essentials. Web.

Marty, W. (2017). The Time value of money. In Fixed Income Analytics (pp. 5-16). Springer, Cham.

Landlord’s Reflection On Landlord’s Problems

In 1776, we faced a new beginning in our politics and governmental structure. My name is John Snow, I own 30-acre potato plantations in California, and the past month’s events have brought considerable changes in our lives. As the result of the revolutionary convention of North Carolina, congress vote for independence separating 13 states from the Great Britain Empire. The next course of events leads to our freedom from Great Britain, and clearly, the course of action is still unclear. Everyone is worried about the future in different terms; some say that we will create democracy, making America the world’s supreme power.

Someone says that we will not survive without European support. Honestly, I do not care about this situation; the only thing I worry about is the possibility of war between Great Britain and America. If the fight starts, it will destroy my business, restricting the opportunity to ship my goods to Europe. I try not to think about this a lot, as it hurts my stomach, but recently I found two brochures stating two opposite things.

I get confused by choosing the side, anyway I prefer those which won’t ruin my business. Inglis (1776) seems to act aggressively, denying the bright future without King’s support. He says that the model of democracy is flawed, and any attempt to introduce it in society is failed (Inglis, 1776).

I read that he said that those who support “poisoned by destructive ideas” and “The independency of America would, in the end, deprive her of the West Indies, shake her empire to the foundation, and reduce her to a state of the most mortifying insignificance.” I think that he is too dramatic in expressing his position; nevertheless, it is undoubtedly true that without protecting the power of that degree, we lost our influence. However, the government controlled every aspect, King’s protection provided us with a stable trade pattern. Now, when the situation is unclear, our plates could be the victim of pirates.

On the other hand, Paine (1776) is optimistic regarding the independence of America. He says that we finally suffered by avoiding the pressure and tyranny of the government (Paine, 1776). Paine (1776) claims that our bright future is a success will reach that degree, so “that America would have flourished as much, and probably much more, had no European power taken any notice of her.” Moreover, Paine (1776) keeps talking that America could lose its trade with other countries due to the aggressive politics of Great Britain. In this sense, the situation and other Americans could be troublesome as my business relies on the trade. Paine (1776) declares that America would become more powerful than any other country in the world. His positive attitude is directed to the trade as well.

For me, the situation seems highly confusing, and only God knows what will happen next. This state of uncertainty is not beneficial for my occupation. I planned to expand my lands and introduce new plantations; however, I do not know further action. Both Paine and Inglis are dramatic and too overwhelmed about this issue, presenting their argumentative point of view. I hope Paine was right and America will prosper and obtain great power. Unfortunately, trade depends on politics to a great extent. So, if independent America will ruin its relationship with Europe and other powerful states, it will affect the market.

References

Inglis, C. (1776). The deceiver unmasked…in answer to a pamphlet. In Common Sense.

Paine, T. (1776). Document 1. In Common Sense.

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