International Financial Reporting Standards refer to the standards that have been set out internationally in relation to financial reporting ( De George, Li & Shivakumar, 2016). There are a number of financial activities that are undertaken in companies and which require reporting. The reporting that is to be done has to be accurate and reliable and which conforms to a certain level of standards. Thus, the international financial reporting standards provide a framework that is to be used in ensuring that the financial reporting in companies is made in accordance with it and thus enable various stakeholders to rely on them. The IFRS spells out guidelines that are meant to ensure that the statement prepared in relation to finance represents a true and fair view of the companies. The reliance on the financial statement by stakeholders as a result of them being prepared in accordance with the required standards ensures that they do not incur losses and that the investments that they make are worth it.
GAAP or the General Accepted Accounting Principles are the principles that are required to be followed in the preparation of the financial accounting statements. Delta airlines, as a company, will certainly have concerns in terms of the movement from the GAAP to the IFRS (US Securities and Exchange Commission, 2020). They have been used to GAAP in preparation for their statements, and thus they will be concerned if the use of the IFRS will meet the required threshold that GAAP did. The use of IFRS is also a costly affair as compared to that of GAAP. Thus, the company will be concerned about the costs that they will incur to report on their finances using the new system. GAAP is also superior to IFRS, and thus the company will be worried about the quality of reporting that they will be doing with the IFRS. These are concerns that the company will need to sort out first even as it moves from GAAP to IFRS.
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One of the differences that will be seen in the balance sheet after the change to IFRS is the way the assets are listed down. GAAP normally lists current assets as the first items, which is different from IFRS that will start with the non-current assets ( Shroff, 2017). Under the IFRS system, the order of reporting is reversed from the least liquid in the most liquid. This is different from GAAP that lists from the most liquid to the least liquid. In relation to the income statement, the IFRS lists expenses in accordance with their function or nature. This is different from the gap that lists the expenses according to their functions. There are also no extraordinary items that are listed under IFRS, which was normally the case with GAAP. There is restricted in this sense, and this serves as another important difference that can be seen between the two systems.
Delta Airlines has a number of inventories that need to be accounted for. The use of GAAP in previous years has defined the way in which inventory is being analyzed in their financial statements. The convergence to the IFRS is set to bring a number of changes. The impact will be the movement of the recording of the inventory as lesser of cost or market value for the use of the net attainable value. The previous system focused on the use of lesser costs in order to come up with the net attainable value. This, therefore, changes as the IFRS recognizes the use of the net attainable value as the best approximation of the inventories realizing their value. Another impact is that the same cost formula will be allowed to be used in all inventories that have a similar nature and use (De George, Li & Shivakumar, 2016). This is different from the previous GAAP that did not require the use of the same cost formula in the calculation of all inventories. The use of LIFO is also prohibited by the new system.
One of the notable differences between the two systems is that GAAP is ruled based, while the IFRS is principle-based ( Shroff, 2017). This is due to the way in which they allow for the financial instruments to be prepared and reported. The treatment of intangible assets also portrays the difference between the two. Under IFRS, the asset will only be recognized if it will have an economic benefit while under GAAP, they are recognized at fair value. The way in which inventories are listed using the two systems also differ. GAAP allows the use of LIFO or lasts in a first-out system of reporting. The same cannot be said of IFRS as it prohibits the use of LIFO in the accounting of inventory. The IFRS also provides for the classification of equity methods investment as held for sale something that is not possible when it comes to GAAP
One of the ways in which the company will be impacted by the conversion is the manner in which they will be presenting their financial statements. The differences that exist between the two systems of reporting are huge, and thus the conversion is set to expose this in the reports made. The other in which the company will be impacted is the costs of preparing the financial statements. The use of IFRS is expensive as compared to GAAP, and thus the company will have to incur more in order to meet the standards required by the international financial reporting standards ( De George, Li & Shivakumar, 2016). The company will also be forced to do a classification of its equities and liabilities as a result of the conversion. The IFRS advocates for a different classification as that of GAAP, and thus the financial statements of the company will bear witness to this fact.
References
De George, E. T., Li, X., & Shivakumar, L. (2016). A review of the IFRS adoption literature. Review of Accounting Studies , 21 (3), 898-1004.
Shroff, N. (2017). Corporate investment and changes in GAAP. Review of Accounting Studies , 22 (1), 1-63.
US Securities and Exchange Commission. (2020). EDGAR - Search and Access . US Securities and Exchange Commission https://www.sec.gov/edgar/search-and-access
