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Compatibility Problems FASB and Alternative Presentation Multinational Companies
Term Paper ID:42461
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Essay Subject:
A brief examination of the differences in the handling of inventory under various accounting ...... More...
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8 Pages / 1800 Words
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Paper Abstract:
A brief examination of the differences in the handling of inventory under various accounting standards. While the asssignment requested an analysis of differences within a single company's statement no such differences were detected in the statement of Proctor and Gamble
Paper Introduction:
Running head COMPARABILITY FASBCompatibility ProblemsFASB and Alternative PresentationMultinational CompaniesYour NameYour AddressCompatibility ProblemsFASB and Alternative PresentationMultinational CompaniesIntroduction The underlying problem is that there are three accounting standards inthe financial world today The first the Financial Accounting StandardsBoard or FASB used in the United States The second is Generally AcceptedAccounting Principles or GAAP that varies from country to country Finallythere is the International Accounting Standards Board The objective of allthese rules is transparency The achievement of this objective is to saythe least elusive If
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There isnothing really wrong or deceptive, but to an American accountant orexecutive it is highly unusual. By way of comparison the balance sheet of Tesco, a highly regarded UKcompany shows a balance sheet in the format shown as an appendix. The FASB and the IASB have begun a joint project to develop a commonconceptual framework. The differenceinvolves the rate benchmarking for the international and domestic plans.(Proctor & Gamble, 2 8)The annual report also contained the statement that the company maintainsinternational controls that are, "...sufficiently reliable to permit thepreparation of financial statements conforming in all material respectswith accounting principles generally accepted in the United States ofAmerica."It is assumed that the primary difference being sought in the assignmentconcerning inventory is the use of different costs between the time an itemis placed in inventory under US GAAP and IASB that focuses on the order inwhich the inventory is sold. Retrieved November 29, 2 8, fromhttp://www.iasplus.com/standard/ias16.htmFinancial Accounting Standards Board. The second is Generally AcceptedAccounting Principles or GAAP that varies from country to country. (2 8). If a corporate financial statement is for anexclusively US entity, is to be used in the United States and is preparedin accordance with US GAAP there are relatively few problems. Both the USand the EU base depreciation on estimated economic life. Designed to Innovate 2 8 Annual Report[Brochure]. GAAP) handling activity." The subjectof depreciation is mentioned 11 times in the notes to the financialstatement, and there is no indication that depreciation is handled in anyrespect differently between US assets and assets located outside the US.According to the notes, depreciation is straight line, and is reviewedperiodically and appropriate changes are made ax needed. financial statements for comparability with their internationalcounterparts. If all theseconditions are not met, the question arises as to which accounting rulesapply. If accelerateddepreciation are used it appears to vary from country to country, probablybased on tax regulation. The balance is between net assets after the deduction ofliabilities and shareholder equity. _Summaries of International Financial ReportingStandards. When it is realized that even the presentation of a balance sheetis substantially different under IASB regulations the magnitude of theproblem is obvious. There are also technical differences in inventory write downand subsequent revaluation. In no instance are there any indications of differingaccounting treatment of inventory positions between international anddomestic operations. There were mentions of hedging activities concerningforeign exchange and hedging of inventory positions in commodities.There was a detailed discussion of the differences between the domestic andinternational portion of the employee benefit plans. Running head: COMPARABILITY FASBCompatibility ProblemsFASB and Alternative PresentationMultinational CompaniesYour NameYour AddressCompatibility ProblemsFASB and Alternative PresentationMultinational CompaniesIntroduction The underlying problem is that there are three accounting standards inthe financial world today. (Deloitte, 2 8) In terms of depreciation,reconciliation of various accounting standards requires careful reading ofthe approach in the specific statements under consideration.ReferencesDeloitte. There is no balance between assets andliabilities. This is indicative of thedissimilarity of International and US, in this case UK, standards.Reconciliation is possible, if a laborious and not particularlyenlightening exercise. These aremade. It is possible to reconcile theUS and International standards because US rules require companies usingLIFO to also report the FIFO values. IAS standards include not only its originalpurchase price but also costs of site preparation, delivery and handling,installation, related professional fees for architects and engineers, andthe estimated cost of dismantling and removing the asset and restoring thesite according to Deloitte. In Note 1 of the Notes to ConsolidatedFinancial Statements there is a statement concerning estimates. Finallythere is the International Accounting Standards Board. A publicly traded U.S. The objective of allthese rules is transparency. In the fiscal yearended June 3 , 2 8 the company had total depreciation charges of $3,166million.The term Inventory is mentioned 9 times in the notes to the financialstatements. International rules say it is not permissibleto subsequently revalue inventory upward if it has been revalued downregardless of price action.In depreciation accounting the differences are more subtle. Cincinnati, OH : Author. This usually permits adjustment ofU.S. company with operations outside the U.S Proctor and Gamble, P&G, is a global company with operations in Northand South America, Asia, Europe and Africa. (2 8). It is a model companyin terms of disclosure and corporate governance. It produces a bewilderingrange of brands from Ivory Soap to Pampers to Gillette shaving products.It is a 171-year-old company that is considered as a blue chip investmentand has been for at least most of the past century. Retrieved November 29, 2 8, fromhttp://www.pg.com/content/pdf/home/PG_2 8_AnnualReport.pdf|Tesco PLC ||Group Balance Sheet ||23 January 2 8 ||Non-current assets ||Goodwill and other intangible assets |2,336 |2, 45 ||Property, plant and equipment |19,787 |16,976 ||Investment property |I 1,112 |856 ||Investments in joint ventures and associates |3 5 |314 ||Other investments |4 |8 ||Derivative financial instruments |216 |- ||Deferred tax assets |1 4 |32 ||Total Non Current Assts |23,864 |2 ,231 ||Current Assets | | ||Inventories |2,43 |1,931 ||Trade and other receivables |1,311 |1, 79 ||Derivative Financial Instruments |97 |1 8 ||Current tax Assets |6 |8 ||Short term Investments |36 |- ||Cash and equivalents |1,788 |1, 42 ||Total Current Assets |5,992 |4,168 ||Non current assets held for sale |3 8 |4 8 ||Total current asset and other liquid assets |6,3 |4,576 ||Current Liabilities | | ||Trade and other payables |(7,227) |(6, 46) ||Financial liabilities | | || Borrowings |(2, 84) |(1,554) || Derivative Financial instruments and other |(443) |(87) ||liabilities | | ||Current Tax liabilities |(455) |(461) ||Provisions |(4) |(4) ||Total Current Liabilities |(1 ,263)|(8,152) ||Net Current Liabilities |(3,963) |(3,576) ||Non Current Liabilities | | ||Financial Liabilities | | || Borrowings |(5,972) |(4,146) || Derivative Financial instruments and other |(322) |(399) ||liabilities | | ||Post Employment benefit obligations |(838) |(95 ) ||Other non-current payables |(42) |(29) ||Deferred Tax Liabilities |(8 2) |(535) ||Provisions |(23) |(25) ||Total Non Current Liabilities |(7,999) |(6, 84) ||Net Assets |11,9 2) |1 ,571 || | | ||Equity | | ||Share Capital |393 |397 ||Share premium Account |4,511 |4,376 ||Other reserves |4 |4 ||Retained Earnings |6,871 |5,693 ||Equity attributable to equity holders of the |11,815 |1 ,5 6 ||parent | | ||Minority Interests |87 |65 ||Total Equity |11,9 2 |1 ,571 | The first the Financial Accounting StandardsBoard or FASB used in the United States. The goal of both boards is to develop an "improvedcommon conceptual framework that provides a sound foundation for developingfuture accounting standards." (Financial Accounting Standards Board, 2 8)This is viewed by the boards as essential in providing the informationneeded by capital providers. Retrieved November 29, 2 8,from http://www.fasb.org/project/conceptual_framework.shtmlProctor & Gamble. In short, P&G is an idealcandidate for the comparisons of domestic and international operations.The assignment directs, "...attention on the entity's accounting forinventory and depreciation". "...in conformity with accounting principles generally accepted inthe United States of America (U.S. (2 8, November 5). The achievement of this objective is, to saythe least, elusive. US GAAP permits LIFO or FIFO while IASBallows only FIFO or weighted average cost. ConceptualFramework-Joint Project of the IASB and FASB.
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