Reference no: EM132325854

Question

The consolidation of financial statements for entities with subsidiaries in multiple countries presents the most challenging difference between IFRS and US GAAP. It would make the most sense for an expanding global economy, that each country agrees upon one way of processing and presenting financial data.

This migration may eventually happen, but will most certainly take some time and be quite costly (Forgeas, 2008).
IFRS and US GAAP differ in determining how financial statements are consolidated on the basis of the controlling interest (FASB.org, 2003).

To prepare financial statements in the US, a few things need to happen. The dollar amounts must be converted from the foreign currency to the US dollar provided that the parent company is US based. Each foreign subsidiary must keep two sets of books. One is based on US GAAP and the other is based on the accounting policies of their own country (Doupnik, Hoyle & Schaefer (2017).

These differences impact financial reporting in the following ways. Finance and operations departments need to update processes and procedures to follow changes in the accounting framework. Contracts will also be written differently.

Specifically, IFRS 10 redefines the principle of control to serve as a basis for consolidation (Ben-Shahar, Sulganik & Tsang, 2016). It is important for shareholders and creditors to have accurate and standardized financial statements in order to make informed decisions.

Required:

Do you agree or disagree on how the differences impact financial reporting and why