Delta airlines, with its headquarter in Atlanta, Georgia, is regarded as one of the largest airlines in the United States of America. With a total of $64.529billion as of 2019, the company generates approximately revenue of $47.007billion with an operating income of $6.618. A company's financial reporting is vital in determining potential losses and profits for the organization. Depending on the company's structure, there is an established period through which financial reports are released to the shareholders. In the case of Delta airlines, it announces its financial state quarterly. However, after financial reporting, the companies may encounter some events that may have an impact on one's organization. In between the reporting date and the date of authorization, issues arising can be classified as adjusting or non-adjusting events. Such issues should be disclosed to prevent harmful, inappropriate decision making.
International Financial Reporting Standards (IFRS) and US General Accepted Accounting Principles (GAAP) are the accounting standard used in preparing financial statements. Despite their few similarities, such as making financial statements on accrued bases and the use of income statements and balance sheets, it also has some differences. However, IFRS and US GAAP have some measurement and recognition differences. One of the differences is that GAAP is ruled-based, which means that it has to recognize some stipulated rules. IFRS is regarded as principle-based, which allows the interpretation of some transactions; for instance, it acknowledges assets only when there are possible economic benefits and measurable reliability. In US GAAP intangible assets are recognized at fair value basis. Another difference is that in GAAP inventory estimates can use First in First Out (FIFO) or Last in Last Out (LIFO). In IFRS, the LIFO approach is not used. Reversal on written down inventory is prohibited in GAAP while in IFRS, stock can be reversed in the future. In writing down income statements, extraordinary items in GAAP are shown below the net income, whereas in IFRS, the details are not shown.
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Disclosure requirements by the accounting standards may give more information to the public, which may, in turn, increase the response of stock returns. The disclosure requirements have assisted in collecting and determining the compliance scores between different companies. Compliance is significant for investors because it increases their reliance on unexpected stock returns. Due to the differences in the US GAAP and IFRS standards, it brings in problems in the disclosure requirement because it becomes problematic to understand the financial information primarily by the investors, creditors, and other commercial users (Tyson (2011). Tax consideration depends on how the company is organized and acts. Firms may be taxed on their properties, and income earned. Again, taxation also considers the borders within where the organization operates. Some of the areas of great concern in income considerations, in this case, are tax planning, which can result to double taxation. Again, another matter is the convergence with other organizations. Lack of proper tax planning can cause double taxation, which can lead to losses.
The convergence process involves coming together by different companies to enhance customer services by bringing in new technology, innovations, and creativity (Pologeorgis 2019). With these, it means that the company will have to stipulate guidelines and the way forward for tax planning. The convergence process will bring transparency and coordination in tax planning. Besides, the convergence process will assist the company in the harmonization of expenditure, which will serve as an alternative goal for equity and stabilization of profits. The contention between the IFRS and US GAAP lies in the classification and measurement of leases. In IFRS, it classifies its leases as finance or operating leases. US GAAP classifies them into operating and capital leases. According to GAAP, it identifies lease as an agreement that allows one to use the property for a given period. IFRS, on the other hand, transfers the right to use the asset even though the lessor may be called in for maintenance services. According to Pierre and Guillaume (2017), the primary contention between IFRS and US GAAP was the classification of capital and operation leases, which brought about off-balance-sheet leases. I firmly believe that the US move to converge with IFRS was good because, through this, it will help many companies to solve financial issues resulting from differences with GAAP. Again, with this move, it will allow the organization to articulate better financial reports free from inconsistency.
The convergence to IFRS has helped in eliminating the gap between it and the principles of GAAP. One of the advantages of convergence is that it has facilitated comparability between different countries on accounting and financial reporting. Delta airlines operate in many countries; in this case, convergence will allow uniformity in financial reporting in different states. Secondly, it will help in the transparency of financial statements. Every organization strives to portray openness in their activities, and in Delta Airlines, they articulate their success to how they run their business. Transparency has helped in building confidence with all their shareholders as well as stakeholders. The third advantage is that it has helped in renewed clarity and simplification. The convergence into the new international standard will help in providing credible information that will not need conversion, making it simple. Delta Airlines have benefit in this case where their quarterly financial reporting has become simpler. Besides, with renewed clarity, it has facilitated the international flow of capital. However, there are disadvantages associated with convergence, such as unwillingness by the different nations due to the type of political system, culture, and ethics. Another difficulty is that the time taken to implement the new system. With the number of countries in which Delta Airlines operates, it might be challenging to implement into all countries it operates. Lastly, the cost associated may result in more expenses that may expedite the operations.
References
Pologeorgis, N. (2019). Gauging the impact of combining GAAP and IFRS. Retrieved 6 May 2020 from https://www.investopedia.com/articles/economics/12/impact-gaap-ifrs-convergence.asp
Pierre, D. & Guillaume, O. (2017). Accounting for leases: A comparative analysis of US. GAAP and IFRS. Retrieved 6 May 2020 from https://www.researchgate.net/publication/336576505_ACCOUNTING_FOR_LEASES_A_COMPARATIVE_ANALYSIS_OF_US_GAAP_AND_IFRS
Tyson, T. (2011). The convergence of IFRS and US GAAP. The CPA Journal , 81 (6), 26 .
