US GAAP Versus IFRS APA - Grade: B+ PDF

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Download US GAAP Versus IFRS APA - Grade: B+ PDF

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US GAAP Versus IFRS Amber Smith ACC 421 February 25, 2019 Sara Carpenter

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US GAAP Versus IFRS Materiality Definitions for the FASB and IASB “Materiality is the threshold above which missing or incorrect information in financial statements is considered to have an impact on the decision making of users. Materiality is sometimes construed in terms of net impact on reported profits, or the percentage or dollar change in a specific line item in the financial statements” (Bragg, 2019). It is of relative importance or weight of any item that is part of the financial statement. For example, the decision to hold, buy, or sell stock rests on materiality items like sales growth or decline. FASB believes that materiality is defined as, “Helping organizations employ discretion when determining what disclosures in notes to financial statements should be considered “material” in their particular circumstances, and helping the Board understand the reporting environment in which it sets financial accounting and reporting standards” (FASB, 2015, para. 3). FASB discloses relevant information by reducing immaterial items from the financial statements. IASB finds that materiality is defined as, “ Information is material if omitting, misstating, or obscuring it could reasonably be expected to influence the decisions that the primary users of general-purpose financial statements make on the basis of those financial statements, which provide financial information about a specific entity” (Tysiac, 2019, para. 3). IASB lists a set of financial statement comprises that show when materiality is in practice. One of them being,” a statement of profit and loss and other comprehensive income for the period. Other comprehensive income is those items of income and expense that are not recognized in profit or loss in accordance with IFRS Standards” (IASB, 2017). Examples of Specific Quantitative Materiality Guidelines

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The guide lines report that relevance means that the information provided by the accounting system will change the decisions making of the person or group pursing the information. “Society needs information to help allocate resources efficiently, but the benefit to any individual or company from that source is not measurable. Nor is the spur to efficiency that comes from making managers account to stockholders capable of evaluation, either at the level of the enterprise or the economy” (FASB, 2015, p. 47). One example of quantitative materiality guideline is, “Reduction of EPS of less than (EPS) 3% in the aggregate not material” and another example would be, “If 10% or more of their immediate category or more than 5% of total assets” (FASB, 2015, p. 55). The Concept of "Articulation" Between Financial Statement Elements Articulation describes the relationship between assets , liabilities, and equity and how they are interrelated on different financial reports. It is giving an idea or accuracy of information or comprehensive view, if items in financial statements are combined together. An example would be the owner’s equity on the balance sheet would be equal to opening capital from last ear plus the net profit on the income statement. It would equal the closing capital. Another example would be the cash balance in previous year ending balance is the next years beginning cash balance on the income statement. Each one is interrelated for the financial statements.

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References Bragg, S. (2019). Materiality. Retrieved from https://www.accountingtools.com/articles/2017/5/8/materiality FASB. (2015). FASB proposes improvements to materiality to make financial statement disclosures more effective. Retrieved from https://www.fasb.org/jsp/FASB/FASBContent_C/NewsPage&cid=1176166401832 IFRS. (2017). IAS 1 presentation of financial statements. Retrieved from https://www.ifrs.org/issued-standards/list-of-standards/ias-1-presentation-of-financialstatements/ IFRS. (2017). IFRS practice statement 2: making materiality judgments. Retrieved from https://www.ifrs.org/issued-standards/materiality-practice-statement/ Tysiac, K. (2019). IASB clarifies definition of 'material'. Retrieved from https://www.journalofaccountancy.com/news/2018/oct/iasb-definition-of-material201820023.html...