| The U.S. is considering changing their accounting | | | | likely be implemented over four years. Unless the |
| regulations from the Generally Accepted | | | | law is changed in the U.S., the companies currently |
| Accounting Principals (GAAP) to the International | | | | using LIFO will have a higher tax cost due to |
| Financial Reporting Standards (IFRS). An outline | | | | IFRS. |
| has been created by the SEC to convert the | | | | IFRS also differs from GAAP in the way they |
| accounting system to a standardized international | | | | measure long term assets. Under IFRS, |
| system. By doing so, many points of GAAP will | | | | companies are allowed to measure property, |
| be changed in order to make accounting across | | | | plant, and equipment at fair value instead of book |
| the world identical. The four points covered in | | | | value. This is a very different procedure in |
| this article are cash taxes, LIFO versus FIFO, fair | | | | comparison to GAAP. This different |
| value measurement, and uncertain tax positions. | | | | measurement requirement could have a significant |
| This article will explain the differences between | | | | effect on debt-to-equity and other balance sheet |
| the two accounting methods and how they will | | | | ratios. |
| likely effect the existing accounting profession. | | | | According to the IFRS "a liability for tax |
| In November of 2008, the Securities Exchange | | | | uncertainties is based on the amount of taxes |
| Commission created and outlined a plan to | | | | expected to be paid to the tax authorities," and |
| convert the methods of accounting in the U.S. to | | | | the process for recognition in GAAP is not the |
| the globally standard IFRS or International Financial | | | | same. IFRS currently has nothing like the GAAP |
| Reporting standards. The United States will | | | | requirements. The International Accounting |
| eventually do the same. This means that if a | | | | Standards Board is working on revisions that |
| company has foreign operations, adapting IFRS | | | | would add a similar requirement, but it would |
| would give them internal consistence over all. | | | | probably require companies to account for these |
| IFRS is already being used in over one hundred | | | | liabilities when only to the extent they become |
| countries. | | | | certain. This lowers the standard for tax |
| Four differences between GAAP and IFRS are | | | | uncertainties in comparison to GAAP. |
| covered in this article. The first being cash | | | | This is only a portion of the differences between |
| taxes.Changing over to IFRS might have a serious | | | | GAAP and IFRS. But what do these changes |
| impact on the United States and foreign cash | | | | mean to current accountants. Currently the CPA |
| taxes of a business. In most cases, financial | | | | exam has been created to test accounting |
| reporting is usually where a company begins to | | | | graduates on the principles of GAAP. IFRS is not |
| determine their taxable income for tax purposes. | | | | included in the curriculum. Until the SEC declares a |
| As these accounting policies change to IFRS from | | | | set date by which American companies must |
| the existing GAAP method, changes will become a | | | | begin to use IFRS, college accounting degree |
| serious consideration for such companies. | | | | programs will most likely continue to teach future |
| LIFO users that use the last in first out method | | | | accountants methods of their profession that will |
| for valuing their inventory may find that the IFRS | | | | almost positively be changed in the future. This |
| practice could cause a major tax issue. IFRS | | | | could mean that after completing the CPA exam, |
| does not allow the last in first out method and | | | | changes to accounting practices could force |
| the tax law only allows the use of LIFO if the | | | | certified public accountants to continue their |
| method is used for financial reporting. Currently, | | | | education. Ones who do not would no longer be |
| the law to change from LIFO to FIFO will most | | | | qualified as a CPA. |