Explain the steps that would be needed for Netflix to transition from GAAP to IFRS.
The modern world of business is characterized by many companies that are working towards integrating the International Financial Reporting Standards (IFRS) as a retread to Generally Accepted Accounting Principles (GAAP). Primarily, the shift from GAAP to IFRS entails a radical change in the accounting in the various companies in the world (Du, Givoly, & Alhusaini, 2017). In the limelight, the American based Netflix has made a move towards shifting from GAAP to IFRS. The impetus is also aimed at coming up with a standard principle for all the accountancy works in the organization and the rest of the business world. Additionally, the drift to IFRS is expected to foster the liquidation of the cash markets to come up with renewed financial growth. The shift to IFRS from GAAP is also targeted at improving the efficiency of the businesses in the contemporary commercial world (Abdallah, 2016). Lastly, the transition from GAAP to IFRS entails Netflix actively joining the cutting edge of accounting in the modern world.
The first step towards the shift from GAAP to IFRS that the company will take is to evaluate the aspects of business in Netflix that the new accounting principle, IFRS, will directly as well as indirectly affect. The chief financial officer in Netflix can be the helm of the research. The second step is to take note of the differences between GAAP and IFRS. The variations might occur in the agreements concerning compensation and contracts at Netflix. The distinctiveness between GAAP and IFRS will be essential it a company in the implementation of the accounting principle. The third stage will be the process involving the designing of the programs to be used in the application of IFRS. The method might include surveying the costs and the benefits that might come out of the project at hand. The fourth step is to test the new improvements concerning their functionality in the organizational context. The last level is to implement the new principle of IFRS at Netflix (Maradona & Chand, 2018).
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Explain how a financial statement would differ under IFRS as opposed to GAAP for Netflix
A financial report on either GAAP or IFRS may have some similarities and may vary from one another. Notably, the financial statements on both GAAP and IFRS have various objectives that characterize the companies in which they are. For instance, financial statements for Netflix on either GAAP or IFRS would talk about the companies aim to satisfy the whole world regarding entertainment. Both accounting methods have the same financial documents. Both IFRS and GAAP have statements of cash flow, income statements, as well as balance sheets. The similarities in the financial records in both IFRS and GAAP may mean there would be a use of both methods in future (Walter, 2017).
The most significant difference between the financial statements in GAAP and IFRS accounting principles is that GAAP is based on rules and regulations while IFRS is based on principles. The GAAP financial documents are strictly emphasized on a no-error basis while the IFRS ones are less restrictive and hence freer for the companies to make interpretations of the financial statements. That difference annuls the idea of the convergence of the two accounting principles soon. The other difference is that the stock valuation under the GAAP principle magnifies the importance of the use of the last in, first out (LIFO) method. Unlike GAAP, the valuation in IFRS makes use of the first in, first out (FIFO) and the average cost (Hellman, Gray, Morris, & Haller, 2015).
In the case of Netflix, the financial statements would be facelifted by the new IFRS accounting principle. First and foremost, the inventory valuation will be calculated using the average cost and the FIFO method. Secondly, the financial statements of Netflix will be subject to some different and independent interpretations for the use and reference of the economic data. Thirdly, the financial statements of Netflix will have a similar format for the financial documents as the other companies in the world (Nobes & Stadler, 2015).
References
Abdallah, W. (2016). The Conversion From US-GAAP To IFRS And Transfer Pricing: Irreconcilable Differences. Journal of Applied Business Research (JABR) , 33 (1), 17.
Du, K., Givoly, D., & Alhusaini, B. (2017). The Impact of the Codification of Accounting Standards on Compliance and Reporting Costs, and its Usefulness for Empirical Research. SSRN Electronic Journal .
Hellman, N., Gray, S. J., Morris, R. D., & Haller, A. (2015). The persistence of international accounting differences as measured on transition to IFRS. Accounting and Business Research , 45 (2), 166-195.
Maradona, A. F., & Chand, P. (2018). The Pathway of Transition to International Financial Reporting Standards (IFRS) in Developing Countries: Evidence from Indonesia. Journal of International Accounting, Auditing and Taxation , 30 , 57-68.
Nobes, C. W., & Stadler, C. (2015). The qualitative characteristics of financial information, and
Managers’ accounting decisions: evidence from IFRS policy changes. Accounting and Business Research , 45 (5), 572-601.
Walter, P. R. (2017). GAAP and IFRS: A look at whether the two should converge .
