You are on page 1of 5

1. Discuss which key differences between U.S.

GAAP and IFRS reported in DC’s 2005 and 2006 reconciliations (Exhibit 3 and 4) have been eliminated as a result of the FASB and IASB convergence efforts. Comment on the future of convergence between U.S. GAAP and IFRS.

Under IFRS, minority interest is included in equity and part of the net profits is specifically allocated to the holders of the minority interest. When using US GAAP the minority interest is not placed in stockholders equity, but net income only includes the attributable to the shareholders. In 2006, the IASB stated that development costs are to be capitalized as intangible assets if the economic and technical feasibility of a project can be demonstrated. If they are found to be feasible the cost can be amortized using the straight-line method using the years of life it is useable. When the asset is sold the amortization of those developmental costs go with it and will be included in the cost of sales. Now for GAAP all developmental costs with the exception of specific software costs should be expensed when they occur as stated by SFAS2 The research and development standard. The current IFRS standard is the same for developmental costs but the research costs are now expensed as they occur.

Daimler Chrysler’s method of accounting for borrowing costs in 2006, under US GAAP, is explained in section SFAS 34 Capitalization of Interest. It states that the interest incurred that was part of the cost of structuring plant, property, and equipment before its use or sale/lease can be capitalized and amortized over the that assets useful life. The corresponding IFRS section IAS23 states that an entity can recognize borrowing costs as an expense for assets that require

Under GAAP the events that occur during period of September 30.substantial set up time. there were some differences in the way that DaimlerChrysler could account for thea significant investment in another company. The transfers of financial assets/leveraged leases are accounted for very differently under GAAP and IFRS. FIFO. IFRS has eliminated the differences in IAS23 to aid with the convergence with GAAP. If using the principles of IFRS. It also states that any other borrowing costs are to be expensed. Companies that report under GAAP can choose between several inventory management methods including LIFO. DaimlerChrysler accounted for inventory in 2006 using LIFO. The modified IFRS section is now quite similar to the equivalent GAAP standard except for the total costs that can be capitalized may be different. There are many . Under IFRS the substantial events must be adjusted for after September 30. 2006. In 2006. The modified IAS23 states that all borrowing costs that are directly caused by the buying or making of the qualifying asset are part of the cost of the asset. and weighted average. This inventory management method is outlawed under IFRS. 2006 and the reporting date do not result in any adjustments unless they are substantial. Since Daimler’s transition to IFRS. which is the European Aeronautic Defense and Space Company. and before the reporting date. The current GAAP and IFRS code sections have not changed much and stay up to date since then. DaimlerChrysler has a large investment in EADS. Still today under IAS 2 IFRS outlaws the use of LIFO. SPE’s (special purpose entities) are consolidated by the transferor while they are not consolidated under GAAP.

Where as in IFRS there is no recognition for a minimum pension liability. While under IFRS the benefit payments are expensed fully at the time the early retirement agreement is . past service costs. When accounting for provisions GAAP and IFRS are different in their approach. While under GAAP discounting is only required for certain types of provisions if and only if the amount and timing of the cash flows are properly and reasonably predicted. These statements still hold true today. Also the IASB now consolidates based on control and defines SPE’s as an entity with a narrow and well-defined objective. The main difference between IFRS and GAAP when accounting for pensions and other postemployment benefits is the fact that GAAP requires a minimum pension liability in the case that an accrued pension liability will be lower than the extra-accumulated benefit obligation.differences in the how leveraged leases are recorded. IFRS states that long-term provisions have to be discounted to their present value if the effect of them is considered to be material in nature. Under GAAP they are recorded on a net basis and under IFRS they are recorded on a gross basis. Following GAAP principles. Under GAAP the entity is evaluated by the amount and characteristics of their equity investment at risk. Some of the other differences between IFRS and GAAP today include limitations on pension assets. There are also differences in the way that GAAP and IFRS account for early retirement agreements. all of the payments during the inactive phase are accrued with a corresponding charge to the earning over the period from the fate of the reaching an early retirement agreement to the end of that employee employment. and termination benefits. Current changes to this area include the fact that IFRS no longer recognizes leveraged leases.

The IASB and the FASB have been working together to converge US GAAP and IFRS. It has been over 10 years since the two of them first got together to discuss this issue. minority interest. and other items. which has not had any major changes to it since 2005. IAS 12 stated that when using the principles of IFRS deferred tax effects are calculated by using the buyers tax rate. which would be using the sellers tax rate. Income taxes are the final difference that will be explained form the 2005/2006 financial statements between GAAP and IFRS. In this report. Another difference is that GAAP accounts for state and local taxes. the IASB and FASB gave a progress report on how far they had come together. The other adjustments section of the report makes up a number of recognition and measurement provisions that affect the financial statements. More recent updates include the Joint Update note from the FASB IASB on Accounting Convergence published in April 2012. When using GAAP the deferred tax rates are calculated using the opposite of IFRS. IAS 21 can explain part of these provisions.official. They also set the goal of converging to a single. Some of those provisions include the differences between GAAP and IFRS on gains and losses from the disposal of foreign operations. There have been no new major rulings under IFRS and GAAP since the introduction of these sections. global set of accounting standards. There have been no major changes to these standards since DaimlerChrysler’s transition to IFRS. This is further explained in SFAS 109. This report also stated that the next eighteen months will be critical for the .

the convergence has been successful and the two standard-setting bodies have become more uniform. In February 2013. . Overall. Most of the short-term goals and several of the long-term goals stated in the April 2012 report have been completed. they published an update on objective while also discussing the impairment phase of financial instruments.convergence effort.