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RIESE CORPORATION is a multinational company engaged in telecommunication.It is public company listed under US stock exchange having its subsidiaries in Europe. The company purchases the materials directly and transfers it to its subsidiaries. The financial statement of subsidiaries is maintained on basis of IFRS where as the consolidated and financial statement to Riese corporation is maintained with the reference of


The company is engaged in equipment sale and servicing providing to the procurers.

The CEO of the Company: Herbert Munchin

Introduction to IFRS

The concept of IFRS, International Financial Reporting Standards is widely

accepted by the corporate for effective presentation of their financial statements.

Financial reporting in the U.S. is changing dramatically.

International Financial Reporting Standards (IFRS) has earned a global demand

and recognition by the , multinational entities with their subsidiaries.

The entities adopting IFRS must be well aware about the benefits and knowledge

about the US GAAP & IFRS and the major differences and its impact on the

financial statements.

Answer 1)

The impacts of IFRS on the financial statement while switching from US GAAP:

Statement of Financial Position-

In view of the use of IFRS in the Financial Statements, it would have a large

impact on the presentation and disclosure requirements of the financial statements

over the US GAAP.

In IFRS the financial statements is to be arranged in such a manner to present the

major activities in a group, for instance (operating, Investing, and financing) and

by way of balance sheet items i.e, (assets, liabilities, and equity).

Any financial statement based on the IFRS consists the following:

Financial Position Statement

Comprehensive Income Statement

A statement showing the position of changes in Equity

A statement showing the Cash Flow of Financial data of the company.

Notes to the Financial Statement, including the accounting policies that

are considered during the preparation of the Financial Report.

This very modification in the presentation of the financial statement together with

departure of financing and business activities in the comprehensive income

statement and statement showing the cash flow of the funds will certain and would

then enable for users of the financial statement to assimilate the key ratios from the

financial information presented by the entity's company/business or through its

operating/financing performance.

Through IFRS a company can classify its assets, liabilities, and equity items in any of

the stated section or category in the financial statement position and the accordingly

incorporate any changes in these items in the comprehensive income and cash flow

statement as specified in the IFRS to provide more relevant disclosures of financial

statement position of the concern.

Comprehensive Income Statement-

Through the use of the comprehensive income statement an entity have the option

to present the matter of financial concern either by way of a single statement of

Comprehensive Income or by separating the statement in two sections i.e, one of

Comprehensive income and another one of the Income Statement. Further in the

statement of changes in equity the parts of comprehensive income may not be



In addition to this the business concern when switch over to the new standard it

would present its financial position statement in a complete set as far as the IFRS is

concerned with to disclose the financial parlance. Further there is also the

requirement on the management part to show its position of Cash Flow in a

statement form regarding the business concerned and thereof make the necessary

disclosures in the end of the financial statement by way of notes.

This would however allow for the comparison of the effects across the financial

statements on changing from the US GAAP to IFRS.

Convergence between UK GAAP and IFRS and its impact on financial statement.

As far as the IFRS is concerned, on switch over from US GAAP to IFRS in

presentation of the financial statements there would be varied benefits to the

business sector all around whether it being related to Accounting Professional,

Financial Statements Users or the Company as a whole. However the switchover

from US GAAP to IFRS is inevitable. The basic issues relating to convergence

between US GAAP and IFRS and its sudden impact on the financial statement are

outlined below:

As such the US GAAP was rules-based and IFRS on the other hand is based on

certain principles, it would affect the financial statement reporting/presentation

and preparation strategy and picture. Now consider Fair value, here as per IFRS

the attention is put on mark-to-market instead of actual market price based fair

value for the assets and liabilities and this would then help in judging the skills of

management for presentation of financial results and give their comments on the

changes occurred. This may help in achieving the benchmark of success for the


For Acquisition accounting, there is a different treatment in US GAAP over

IFRS. Considering the US GAAP the option was available to select between

merger /purchase accounting, then one should go for the method involving the

use basis of Purchase only.

In Goodwill as per IFRS, companies have to consider the impairment of

goodwill on an annual basis to determine the actual value of Goodwill on the

Balance sheet. As a contrary in US GAAP the companies are allowed to amortise

the goodwill and the option is available for not segregating intangible assets from


Cole, M. (November 25, 2008).

DeFelice, A. & Lamoreaux, M. (February 24, 2010)

Consolidation of accounts- As per the provisions of IFRS the companies

have to consolidate their subsidiaries into the group company / the holding


As far as IFRS is concerned the guidance in relation to Revenue Recognition is

less widespread to that of US GAAP. This also have a wider impact on the

presentation of the financial statement considering the use of financial statement

for users and management.

Research and Development costs- The Research costs should not be reflected on

the balance sheet and should be written off as it is incurred similar to a revenue

expense. The development expense are treated as capital in nature and therefore

capitalised and shown in the Balance sheet.

Distributable profits- Dividend is the reward that a company intends to give to

their shareholder out of its surplus profit earned during the year. The dividend

distribution of a company depends upon the distributable profit of the


Some major impacts on distributable profit of IFRS are -

It is derived after making deduction of deferred tax liabilities, and higher

provisions is required for deferred tax when the entity tend to shift from historical

costs method to fair value and reports deficit of pension in income statement.

Deferred tax credit- Under IFRS the Deferred tax credit is not allowable.

Derivative contracts- Some derivative contracts are not qualified as hedges under

IFRS as it does not meet the criteria as per the requirement. Under the concept of

GAAP the contracts are to be deferred until the transaction take place. IFRS

however do not permit the deferment of such contract but rather have affect on the

profit and loss account yet before the operation takes place. This enables the

investors to determine the current firm value on the desired date in spite of the

historical cost of such instrument.

As a consequences the burden of the company is increased to calculate the fair

value of the instrument.

Cole, M. (November 25, 2008).

DeFelice, A. & Lamoreaux, M. (February 24, 2010)

Answer 2)

IFRS presents the proposed format for financial statement disclosure:

Considering from the perspective of Riese Corporation, the new format for the

presentation of Financial Statements would play an essential role in the Sales

forecast and determination of the Operating Income. On employing the use of this

format for the Financial Information presentation the main advantage that will flow

to the Riese Corporation is as under:-

Financial Statement presentation in this format would enable to attract the

prudent investor's vision towards the company.

As in this new format of the financial Statement Presentation all the

categories are disclosed individually in separate column, the financial data

can be shown more effectively and efficiently and hence would enable the

users to get their required information from the Financial Report.

As per the users of financial statement Users view, the use of new format of

Financial Statement Presentation will impact their decisions as follows:

The present format of Financial Statements Presentation will give the Users

a clear and transparent view of the financial position of the concerned

Company and enable the investors to analyze the fundamentals in a more

positive and appropriate manner.

It provides a comparative view of Financial Information,

Income Statement and Cash Flow of the Company at the same

place and thus enable the users to make effective decision

making and plan their investment in a long term perspective.


Answer 3)

Advantage & Disadvantage of IFRS:

Accounting standards refer to the rules of measurements of financial statements

of the business entity or the public company. This enable the company to present a

transparent picture of companies position to its stakeholders and other concerned

entities/persons whose decision making is affected by the financials and

fundamentals of the concern.

There are various advantages and disadvantages to the U.S. companies changing

their systems from U.S.GAAP to IFRS. As the markets have grown to become

more complex and global, the disparities between the two standards have been a

significant issue as consumers and producers call for reform.

+ The first benefit of the conversion is comparability. Switching to IFRS would

allow people to see various companies from different parts of world on the same

plane. As willingness to trade increases, cross-border investment and integration of

capital markets are easier with greater market liquidity and lower cost of capital.

+ Investor bases would increase as the financial reports are becoming comparable.

+ Companies would be able to more effectively allocate their capital. Having one

standard, however, does not guarantee comparability. With the same standard,

practices and enforcement can differ considerably across firms and countries. It is

only natural because diversity in accounting standards would result from diversity

of the countries' institutional infrastructures.

+ IFRS has wider rules and less specific guidance applications, giving more room

to interpretation. Thus, IFRS incorporates the value judgment of an accountant in

its financial report. These value judgments can easily be influenced by incentives a

company may have, causing a variety of ways to implement IFRS. This further

interferes with creating a global standard.

+The five principal areas where there are disparities are fair values, revenue

recognition, share-based payment, financial liabilities and equity, and




+In the area of consolidation, one of the specific differences is the order of the


+ GAAP uses the basis of LIFO method i.e, Last in First Out, which means that

goods purchased currently are sold first and that the remaining items that have

been purchased in the earlier will be considered subsequently.

LIFO method results in lower gross profit, which reduces the tax burden of the

company. IFRS, however, does not accept the LIFO method. Implementing

IFRS would "trigger a big tax hike for the company". This would probably

diminish a company's position because of a higher tax burden. Thus, the

differences between the standards in the various areas affect a firm holistically.

+ The second benefit of the conversion is cost savings, primarily for multinational


+IFRS is a set of standards of higher quality.



Answer 4)

As per SEC, transition to IFRS states the following summarization:

The path set for this approach to seven milestones which would influence the SEC's 2011

decision that whether to move forward. Some of these milestones are:

• Improvements or Enhancement in accounting standards

• Developing the ability to make efficient and effective use of interactive data for IFRS

reporting purpose.


There are many advantages and disadvantages of converting from GAAP to IFRS.


• The use of one common global reporting language.

• It will allow for comparability over all financial markets, regardless of the country of


• It will provide enriched information to the investors for their improved decision making.

• It will provide more flexibility to the companies in applying accounting principles. IFRS

is more principles based, whereas GAAP is more rules based. Transactions will be required

to be reported using substance over form criteria. More professional judgment will be

exercised which will lead to better disclosure to support those judgments.

• There is the potential for reduced financial reporting complexity, especially for large,

multinational companies that currently prepare many different sets of financial statements

in many different forms.

• All levels of management, including the audit committee, will have to be more involved

in financial reporting and aware of transactions.

• In the end, companies should be more efficient and have the advantage of cost-savings.

Foreign Private Issuers, FPIs, IFRS Taxonomy by Jeff Henson

http://EzineArticles.com/expert Ashlley Jarmari


• Small companies that have no dealings outside of the United States have no incentive to

adopt IFRS unless mandated.

• Incompatibility may arise as companies claim to have converted to IFRS but in reality

have only selected the portions that best fit their needs.

• There is no incentive for early adoption due to the fact that it could be a colossal waste of

time and resources. Also, companies would be required to have two sets of records, one

GAAP, one IFRS, during this time just in case IFRS is not adopted.

• Many feel that during this financial crisis that the world is currently experiencing, a

conversion of this magnitude is too much to ask of executives and management.

• A minimum of two years of financial information prior to conversion would need to be

maintained on two sets of books, both GAAP and IFRS, to meet the requirement of

financial statements to contain three years of financial data.