How will the adoption of IFRS change financial reporting by companies?
Manager 1: The new rules will definitely change the way our organization prepares financial statements. I think the new rules will also make financial reporting more costly and complex. There will be much more transparency in the financial reports after the implementation of IFRS. However, I think in the long run this would benefit the organization as this would result in fair practice.
Manager 2: A lot is going to change in the way financial statements are prepared including the look of the financial statements, the names of the financial statements etc. GAAP and IFRS have completely different approached towards accounting standards. There is thus going to be a lot of change in the way financial reporting will be done.
Analysis: IFRS and GAAP have a significant number of differences. The differences between the two would lead to significant changes in the financial reporting of companies. Some of the changes like IFRS does not allow the use of Last in First out (LIFO) method for inventory costing, would change the way inventory costing is done. While defining the rules for revenue recognition, IFRS is less detailed than the GAAP. IFRS does not allow cure of debt violations after the end of the year. Some of the financial instruments which fell under the category of equity in GAAP, now fall in the category of debt as per the IFRS. In expense recognition, the amount of expense as well the time period that can be recognized by organizations is differently defined in IFRS and GAAP. All these and a lot more differences will change the financial reporting of companies. (Christopher Nobes, 2004)