GAAP gives more leeway in that if a company has the ability and the positive intent to refinance a current liability then it can list it as a long term liability. Discuss the pros and cons of each approach. Choose the method you think is preferable and justify your choice.

DISCUSSION ESSAY

IFRS has strict rules that if a liability is a current liability at the end of the accounting period then it is a current liability on the balance sheet. GAAP gives more leeway in that if a company has the ability and the positive intent to refinance a current liability then it can list it as a long term liability. Discuss the pros and cons of each approach. Choose the method you think is preferable and justify your choice.

Respond to 2 classmates:

Classmate 1(destinee): IFRS offers a clear cut definition of current liabilities that leaves little room for leeway and misinterpretation. One of the benefits of this approach is the ability to mitigate dishonesty or manipulation since the liabilities are classified the same way consistently. One of the downsides of IFRS regulations would be a disadvantage to an honest company that wants to frame their finances in a specific way. If the company is taking this action honestly and appropriately, adhering to IFRS standards may cost them. Alternatively, with GAAP there is more room for interpretation and discussion. A benefit of GAAP would be allowing a business to present their finances in a manner that is beneficial to their goals and demands. Though GAAP does not guarantee a positive outcome, with more room to position the statements in a specific manner there is more of a risk for misrepresentation or dishonesty. Overall, GAAP seems to be the better option. While accounting courses and practices aim to promote transparency and honesty, adhering to GAAP in the United States, the practices in place are strong and well researched.

Classmate 2( bryan): When it comes to the IFRS, they are very strict when it comes to liabilities with little leeway on how they are interpreted. Virtually all liabilities that fall under IFRS are treated as current liabilities while lacking a detailed classification of whether the liability is current or long-term. GAAP is more lenient by proving corporations classifications on making disclosures on their finances, to where it can be beneficial to their wants and needs. The benefit the IFRS has over GAAP is that it is commonly used by most nations’ internationally accepted accounting standards. On the other hand, the practice of GAAP is exclusively in the United States. The disadvantage for US companies operating under GAAP is that they must also perform under IFRS when they are doing business in international markets, making it more difficult. An advantage IFRS has over GAAP is that it allows depreciation to be capitalized, whereas for GAAP that is not the case. A disadvantage of IRFS has on, particularly for smaller companies is increased costs where there are limited resources to implement changes, thus having to rely on bringing in accountants for help. Overall, IFRS seems to be the preferable option. While GAAP is more beneficial for US companies being more prescriptive, again it only applies in the United States to domestic organizations. Meanwhile, IFRS offers greater comparability in financial statements and flexibility for companies operating in different nations, and it also helps investors choosing on their investments.