Sample Finance Paper on Convergence of General Acceptance Accounting in to International Financial Reporting Standards


In this chapter, the background of the study which will elaborate on the setting of the research and statement of the study problem. The general and specific objectives of the study will also be outlined in this chapter. Hypotheses to be tested, the significance of the study, and the research approach will also be captured. The approaches of the research which will state the design and the approaches used in the study will also be discussed in the chapter.

Background information

According to Van and Vasstraelen (2005), General Acceptance Accounting (GAAP) Principles is the financial reporting method which entails a collection of popular accounting rules and financial reporting standards. The specification of this methodology includes the definition of industry rules and accounting principles. The method aims at ensuring transparency and consistency of the financial reports from one company to another (Barth and Schipper (2008). The security and commission transfer in the United States orders that during the financial reporting processes, the company must adhere to GAAP requirements. According to Albring et al. (2010), GAAP is stipulated in the state and local government by the Governmental Accounting Standards Board (GASB). Besides, Financial Accounting Standards Board (FASB) is concerned with its overall stipulation.

However, most of the states use IFRS, which is structured to provide the general framework of the companies’ financial statements across the globe (Palepu, Healy, and Peek 2013). This methodology offers investors with cohesive accounting information. Besides, according to Daske et al. (2008), the method provides general guidelines in the preparation of financial statements, instead of the specific reporting rules used by the company.

According to Haverals (2007), there still exists a confusion between the IFRS and the IAS (International Accounting Standards), which was older IFRS. IFRS entails a variety of financial accounting activities. Some of the compulsory rules adhered by accounting reports using IFRS are statements of; comprehensive income, financial position, ownership changes and cash inflow (Mackenzie et al., 2012). The statement of the cash inflow entails the summary of the all the financial transaction in the firm in a specific period. Besides, equity statements consist all the changes in the income earned by the company at a given period. Income statement consist of either loss or the profit statement or both. Lastly, balance sheet which is influenced by the IFRS in component report method. Balance sheet is also known as financial statement of a firm or company.

Globally, financial reporting requirements and methods vary by state (Tarca 2012). Therefore, investors experience a hard time when looking for companies to give them capital. According to Epstein and Jermakowicsz (2010), the primary difference between GAAP (General Accepted Accounting Principles) and IFRS (International Financial Reporting Standards) is that IFRS is a principles-based financial reporting methodology, while GAAP is rule-based accounting reporting methodology. The IFRS only considers if the assets have a future economic benefit and reliability. Last-in, first-out is not allowed under the IFRS. On the other side, under the United States’ general accepted accounting principles, the intangible assets acquired are fairly valued. The methodology entails both the last-in, first-out inventory estimate. In general Accepted accounting principles, a single inventory costing method could lead to capability enhancement between the states. In addition, a separate inventory costing method eliminates the need for analysts of last-in, first-out inventories in comparing the analysis.

According to Albring et al. (2010), IFRS is a global initiative adopted to report financial statements of the 21st century critically. More than one hundred states’ public companies, including the United Kingdom’s companies, have adopted IFRS in preparing their financial statements. The merging of IFRS and GAAP in the United States of America, have taken long to take place. According to Bishop et al. (2005), Norwalk agreement was the first merging step, which included the IASB and the FASB in 2002.

According to Al-Yaseen and Al-Khadash (2011), in the globe, the accounting system is significantly advantageous to professionals because it allows investors to quickly relate the financial statements between firms and organizations from various states. According to Nellssen and Zuelch (2011), if all the companies apply IFRS across all the nations in reporting their financial statements, there would be easy to know what and how different firms do and don’t disclose in their financial statements. However, it would be beneficial to firms and organizations in upholding the IFRS. Besides, the IFRS will be of much importance to the accounting managers in all public companies.

According to Mc-grew (2008), global interconnectedness has increased due to globalization and technological advancement in both public and private companies across the world. Besides, it is believed that financial reporting exercises play a significant role in companies’ accounting processes. Furthermore, these accounting processes have great significance to auditors, executives, and companies, accounting management. They are also beneficial to accounting and finance students. According to Aras, Aybars, and Kutlu (2010), corporate management is concerned with the reliability and the quality of the firm’s financial statements. Therefore, there is a need for understanding the effect of the financial reporting essential of the company due to the lack of replacing General Accepted Accounting Principles with IFRS

According to Kirsch (2008), the IASB were formed in 1973. It was a result of the issuance of International Accounting Standards by the (IASC). Later in early 2001, after the replacement of the IASC by IASB, there was the introduction of promulgating standards in IFRS pronouncements. IASB adopted IASC for seventeen years (between 1973 and 2000). According to Whittington (2005), International Accounting Standards continued designating the older standards under the supervision of IFRS.

Moreover, IASB adopted the IASC’s structure of the organization. This structure entails, supervision of board market authorities, which appoint the members of the IASC foundation. According to Madawaki (2012), across the globe, companies have different accounting standards. Some of the reasons for these are political systems, the source of capital, cultures, taxation, the complexities of the company, inflation, etc. It is, therefore, very essential to have global stock markets and global financial markets for the relevance of the International Financial Reporting Standards. However, IFRS have made efforts to ensure they meet all the individual needs of a given country, instead of being the irrelevant and ineffective solution in the globe (Morris et al., 2014). Moreover, the resistance toward IFRS exists, based on the agreement on deciding who to crate the law, disparities between national accounting standards and IFRS, national sovereignty, and GAAP to IFRS changing cost.

Statement of the problem

According to Mackenzie, et al. (2012), various studies have looked at how International Financial Reporting Standards have been adopted and implemented due to continuous debate on a single set accounting standards transformation. Over one hundred and twenty countries have been using the IFRS in their financial reporting. Besides, various states have made efforts in IFRS integration in IASB. Consequently, the accounting quality has increased due to the study of IFRS, which has indicated a negative change in the asymmetry of information between investors.

In Germany, researchers have studied the disparity between the GAAP and IFRS using first-time adoption monetary expression at transition, using the net income and the effect of impacts created on the equity level (Haller et al., 2009). Its research found that there was a significant positive improvement of the average level of ownership and gross income. The adoption and implementation of the International Association standards 11, 26, 37, and 38, together with the IFRS 3, increased the level of equity. Besides, the adoption and implementation of IFRS increased the level of net income. This research was unable to determine the exemption choices, which resulted in a significant change in the shareholders’ equity experience.  In 2011, Blanchette and Girard conducted a study by examining the reporting activities in different companies who have/ have not adopted and implemented the IFRS guidelines. The research shows that there exists an IFRS volatility in the companies which have not yet uphold to the IFRS guidelines (Callao and Jarne 2010). The quality of the results of Blanchette and Girard’s study was limited as they used only nine companies.

Generally, the various study conducted on investigating the impacts of the application of the IFRS on companies’ financial statements has not been critically studied. Therefore, this survey aims to examine the difference between the financial statements for the companies using GAAP and companies using IFRS in the United Kingdom. The study used the NYSE (New York Stock Exchange) listed companies, therefore, preparing financial reports using the guidelines of IFRS and GAAP. Thus, the study will use two different accounting methods to determine the possible effects contributed by the implementation of IFRS and GAAP in the companies.


The study aims at testing the following null hypothesis and alternative hypothesis

  1. H0: The difference between the Personal Protective Equipment financial reporting under General Accepted Accounting Principles in Us and IFRS in the UK is significant.

H1: The difference between the Personal Protective Equipment financial reporting under GAAP in the US and IFRS in the UK is not significant.

  1. H0: The difference between the financial reporting for inventories under General Accepted Accounting Principles and IFRS is significant.

H1: The difference between the financial reporting for inventories under GAAP and IFRS is not significant.

  1. H0: The difference between the IFRS financial reporting under IFRS and GAAP is significant.

H1: The difference between the Impairments of Financial Instruments’ financial reporting under IFRS and GAAP is not significant.

  1. H0: There are no effects of inventories accounting value changes on reported earning losses and Personal Protective Equipment by the companies in the United States

H1: There are effects of stocks accounting value changes on reported earning losses and Personal Protective Equipment by the companies in the United States

Aim and the objectives of the study

General objective

  • Describing the critical disparities between the assets’ accounting under GAAP and IFRS, and the impact of adoption and application of International Financial Reporting Standards in the United States’ companies.

Specific objectives

  • To examine if the difference between the Personal Protective Equipment financial reporting under GAAP in Us and IFRS in the UK is significant.
  • To determine if differences between the financial reporting for inventories under GAAP and IFRS are significant.
  • To ascertain if the difference between the Impairments of Financial Instruments’ financial reporting under IFRS and GAAP is significant.
  • To examine if the effects of inventories accounting values changes on the reported earning losses and Personal Protective Equipment by the companies in the United States.

Significance of the study

In clarifying the disparities between the United States’ GAAP and IFRS in assets accounting, it is essential for financial experts to consider the corporate executives, accountants, auditors, financial analysts, and financial and accounting students. These students will be required to prepare the accounting reports and assessments in different companies within and outside the United States, using either GAAP or IFRS.

Therefore, this research makes a significant contribution to the literature concerning accounting standards convergence from GAAPs to IFRS. The study also highlights the convergence effects on financial reporting information, mostly basing on the firm’s assets accounting and income reporting. The study compares the IFRS and the GAAP reporting information basing on the firms having an alternative stock exchange market listing in the United States. Possible effects on the adoption and implementation of the financial reporting of Unite State firms by IFRS reporting activities of the United Kingdom will be exhibited in this study.  Therefore, the survey plays an important role in the IFRS convergence-based studies. The study’s conclusion would be essential in making conclusions on companies’ financial performance information. Example, by concentrating on the possible impacts of the reporting standards on the reported revenue of the company.

The approach of research

The research is deductive in nature. It is taken from the secondary data of the accounting standards convergence. This is through the United Kingdom’s IFRS by US companies. According to Tracy (2012), for this study to be scientific, it used the deductive research approach, thus becoming systematic in the future studies verification. The design used in this study was the archival research design. It was convenient for the study, as most of the data were written data. I.e., the historical information concerning the financial statements. The collection of the data was done on the listed companies’ financial statements sample on the New York Stock Exchange. The study presented the sample companies used in appendix one. Qualitative information is not much considered in this study, as the quantitative data since it is more objective.  According to Braun and Oswald (2011), qualitative information tends to be much subjective as much of it is biased. Hence, this could interfere with the study’s conclusions.

The outline of the study

The study has six chapters in total. That is, chapter one (introduction), chapter two (Literature review), chapter three (Research methodology), chapter four (analysis and result of the finding), chapter five (discussion of the findings), and chapter six (conclusion). The different chapter has a different and unique role in this study. The combination of these chapters provides a consistent and complete report.

Summary of the chapter

In chapter one, all the issues under the study are well introduced. The introductory paragraph aimed at catching the attention of the reader of this research paper. The background information chapter has given full information about the origin of the research topic. Besides, the statement of the problem part, which is a focal point of the study, provides a general overview of research and the reason for the study. The aim and objective of the study paragraph give a broad and specific purpose of the study in statement form. This chapter also entails the significant of the study part that creates problem looking perspectives. The part has pointed out how the investigation is related to the general and specific objectives of the study. Furthermore, the research approach part has well described the approaches and designs used in the survey to make it successful. Therefore, the information on the study’s motivation and the main areas to be covered in the survey are included in this chapter.



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