The Differences And Similarities In The Financial Statements Accounting Essay

Introduction

Ford Motor Company is a U.S transnational auto manufacturer located in the metropolis of Dearborn, Michigan. The company was founded by Henry Ford and on June 16, 1903 it was incorporated. Along with the Ford and Lincoln trade names, Ford besides owns a little portion of Mazda in Japan and Aston Martin in the UK. UK subordinates of FORD, Jaguar and Land Rover were sold to Tata Motors in India on March 2008. Ford sold Volvo to Geely Automobile. Ford in 2010 exposed the Mercury trade name. ( Bak, 2003 )

Ford Motor is the second-largest auto maker in the United States and fifth largest in the universe in footings of the figure of one-year cargos. By the terminal of 2010 it was the largest manufacturer of Europe. Ford is the eighth in the order of U.S. companies in the Fortune list for 2010 on the footing of entire grosss that are 118.3 billion U.S. dollars. In 2008, production of Ford Motors was 5.532 million and employs were estimated to be about 213,000. During the crisis of the automotives, there was a bead in the production of Ford, with an overall production making to 4817000, in 2009. In 2010 Ford had a net net income of 6.6 billion U.S. dollars, cut downing its debt by 33.6 billion dollars to 14.5 billion U.S. dollars. The company received quality study awards form JD Power and Associates, which were more than any other in the automotive industry. Ford took the award for five autos in four classs and a twelve autos in the top three. ( Douglas G, 2003 )

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The company being located in USA has to follow the regulative frame work of US, i.e. United States by and large accepted accounting rules normally abbreviated as the U.S. GAAP.

US GAAP are rules of accounting or merely accounting criterions that are used in the readying and entry fiscal statements for publically traded companies and private non-profit organisations and authoritiess. And normally contains by and large accepted accounting rules applicable under local accounting criterions.

Honda Motor Co. , Ltd. is a Nipponese transnational auto manufacturer. Previously it was known as a maker of autos and bikes. It is the universe ‘s largest maker of bikes, and since 1959 the universe ‘s largest maker of internal burning engines, and has the production volume of more than 14 million engines each twelvemonth ( Bak, 2003 ) . Honda Overtook NISSAN in April 2001, and became the 2nd largest Nipponese car industry. In August 2008, Honda surpassed Chrysler for the car industry and became the 4th largest in the United States. Honda is the largest car maker and ranks in the 6th topographic point in the universe.

It was Honda ‘s car industry which launched a luxury trade name for the first clip in Japan which was Acura in 1986. Apart from the basic auto and bike company, Honda besides gardens equipment, marine engines and personal watercraft, generators and others. Since 1986, Honda has contributed to unreal intelligence and robotics research. They dared to come in the air power industry with the constitution of Aero Engines GE Honda in 2004 and their Honda Jet – 420 is scheduled for launch in 2011. Honda spends approximately 5 % of its grosss in research and development.

( “ The History of Honda ” : www.Cars-directory.net.

“ Honda Worldwide | History ” : www.World.honda.com. )

Honda being located in Japan has to fix its fiscal statements in conformity with IFRS.

International Financial Reporting Standards ( IFRS ) are the standards on the rules, readings, and societal plans set by the International Accounting Standards.

Many of the regulations are portion of the international criterions known by the former name as International Accounting Standards. On April 1, 2001, IFRS adopted a new computerized National Identity Card Inter-Agency Standing Committee responsible for the development of international accounting criterions. Today the International Accounting Standards Board is responsible for the development of new criterions ( IASB,2008 ) .

Background and job definition:

The research job to be addressed would be: “ The differences and similarities originating in the fiscal statements of Honda and Ford auto Manufacturers due to different regulative models ”

Research Questions

The research worker will seek to reply the undermentioned inquiries:

What are the differences and similarities in the fiscal statements of the two auto industries?

What are the two regulative organic structures? their criterions and coverage processs?

What is the function of audit and accounting professions?

Research Aims

The aims of this research are as follows:

Find the differences and commonalties of the manner cardinal assets, liabilities, capital and net incomes are recognized and disclosed in the fiscal statements

Focus on:

fiscal accounting

fiscal coverage

accounting criterions

statute laws relevant to accounting

ordinance and enforcement of the regulative model by the regulative organic structures.

Literature Review / Theory

IFRS

International Financial Reporting Standards are the “ rules ” to modulate the development of general regulations sing accounting patterns.

International Financial Reporting Standards include the follows:

International Financial Reporting Standards, and criterions published after 2001

International Accounting Standards ( IAS ) , and ordinances issued before 2001

Interpretations have been issued in the International Financial Reporting Interpretations Committee after 2001 ( IASB.2008 )

Committee has issued readings of sic before — 2,001

Model for the readying and presentation of fiscal statements ( 1989 )

Aims of fiscal statements:

The fiscal statements should show s true and just position of the organisations accounting patterns. In laic adult male ‘s words it must equilibrate the true image of the organisation ‘s activities, since information produced has to be used by assorted constituents of the society or regulative governments.

Qualitative features of fiscal statements

Qualitative features of fiscal statements as follows:

Clarity

Dependability

Comparison

Link

True and just position / carnival presentation

Elementss of fiscal statements

Company ‘s fiscal statements are fundamentally an overview of fiscal aid. These would include the undermentioned elements:

Assetss: An plus is a resource of the company, incurred as a consequence of past minutess which will ensue in future economic benefit to the company or an in-flow of future economic benefits for the company.

Liability: A liability is a present duty of the company resulted from past events, whose colony is expected to take to the out flow of corporate resources.

Equity: Are the company ‘s staying assets after tax write-off of all duties under the historical cost method. It is besides good known as the proprietor ‘s portions.

The fiscal public presentation of the company is chiefly shown in net income and loss history or balance sheet. Elementss of net income and loss history or the elements used in the measuring of fiscal public presentation are:

Income: the economic benefits increased during the period in the signifier of influxs or sweetenings of assets or lessening in liabilities or an addition in equity.

Expenses: to increase the benefits of economic diminution during the period in the signifier of escapes or depletion of assets or liabilities, ensuing in a decrease of equity.

U.S. by and large accepted accounting rules ( GAAP )

United States by and large accepted accounting rules, and normally abbreviated as the U.S. GAAP are rules of accounting or merely accounting criterions used in the readying and entry of studies and the fiscal statements for publically traded companies and private non-profit organisations and authoritiess. And normally contains by and large accepted accounting rules applicable under local accounting criterions.

Presently, the Financial Accounting Standards Board ( FASB ) is the highest authorization in finding the rules of proper accounting for public companies, private and non-profit organisations. Accounting in the Federal Government is treated by the Advisory Board of the Federal Accounting Standards FASAB.

Comparison between the IFRS and US GAAP

There are a few similarities between IFRS and US GAAP and the differences are quickly acquiring reduced. The differences explained below are merely a few important 1s and as of this point of clip.

With regard to gross acknowledgment, US GAAP has developed a elaborate counsel for different industries integrating criterions suggested by the other local accounting standard organisations in the US. IFRS, on the other manus, references two chief gross criterions along with a twosome of readings related to gross acknowledgment as counsel.

There are besides some important differences related to when an disbursal should be recognized and the sum that has to be recognized. For case, IFRS recognizes the disbursal of certain stock options with enthroning over a period of clip Oklahoman than the GAAP.

There are besides some important differences between the US GAAP and IFRS with regard to the sphere of fiscal liabilities and equity. Instruments that were regarded as equity by the US GAAP will be considered as debt under the IFRS criterions.

The US GAAP has several standards for consolidation whereas under IFRS, a company can consolidate based on the power it can exert on the fiscal and operational policies of the other entity. By being responsible for the coverage and public presentation of these new entities can impact the company ‘s funding agreements and several more countries.

Unlike US GAAP, IFRS forbids companies from utilizing the LIFO or the last in, foremost out method of bing stock list. Companies utilizing LIFO will hold to transition to other bing methodological analysiss.

The major difference between U.S. by and large accepted accounting rules and IFRS is to let three different constructs indispensable to capital and capital care. As approved by U.S by and large accepted accounting rules ( GAAP ) merely two constructs of capital and capital care are allowed in times of low-inflation and deflation. While IRFS recognizes all three,

by and large accepted accounting rules of America ( GAAP ) does non acknowledge the construct of capital ( 3rd party ) and the saving of capital in times of low rising prices and deflation, and care of any of the authorised capital in units of buying power.

Differences in accounting patterns and policies

The most of import countries of similarities and differences between US GAAP and IFRS are on the fiscal statements of companies in the European Union, with international criterions as adopted by the European Commission. These regulations may change in some instances: international criterions by the International Accounting Standards Board

Relevant criterions of IFRS:

Form and content construct: ( IFRS selected ) including the International Accounting Standards still exists and the readings specified may be extra demands under the local jurisprudence, governments or stock exchanges.

Relevant criterions of GAAP:

The signifier and content construct: ( GAAP ) specified in the hierarchy of by and large accepted accounting rules. Fiscal statements in conformity with International Financial Reporting Standards include:

aˆ? Balance sheet

aˆ? Income statement

aˆ? Statement of the followers:

1. – Changes in equity or

2. – Changes in equity other than those originating from capital minutess with proprietors

aˆ? Income and Expenditure

aˆ? hard currency flow

aˆ? accounting policies and notes

aˆ? The fiscal statements of assets and liabilities, fiscal place and consequences of the company. IFRS requires a true and just representation of the minutess and events.

aˆ? The application of this criterion is for little and average concerns. Extra information is required if necessary. The findings contained in the fiscal statements should show a just position of the fiscal place and public presentation for little and average concerns.

aˆ? The application of international criterions for an entity with public answerability is non the same. Fiscal statements under GAAP comprise of:

aˆ? Balance

aˆ? Income

aˆ? Total national income. This statement is concerned with net income and loss history or in combination

aˆ? Statement of alterations in equity.

aˆ? Cash flow

aˆ? Notes to the fiscal statements

IFRS has two chief expense classifications:

Nature of disbursals

Function of disbursals

IAS 1 does non stipulate the signifier of income but there is no fixed elements that should look on the face of the income statement. Extra information is requires and should be mentioned on the face of the net income and loss history in the signifier of notes ( IAS, 2004 ) .

U.S. GAAP does non supply a standard format. Single or multiple phases are acceptable. Supreme Education Council, Sox organisation requires that a specific belongings should be shown on the face of net income and loss history. Time skyline for the continuance of the work is “ sensible period of clip non transcending one twelvemonth from the day of the month of closing. ”

Within the model of international criterions ( IFRS ) a company has a complete the set of fiscal statements at least one time a twelvemonth. When the alterations in the day of the months of the company ‘s accounting period to the day of the months of the fiscal statements entry consequence in more or less clip hold, the company has to supply the undermentioned information:

1. The ground for the usage of thirster or shorter period.

2. Provided that the comparative figures are non in the fiscal statements ( including the notes ) the consequences are rather similar.

Contrary to international criterions ( IFRS ) , by and large accepted accounting rules ( GAAP ) if there are alterations in the study where the mention period is non transcending 12 months, the company shall fix fiscal statements for the period of passage and the beginning of a new stage of the day of the month should be notified.

Consistency of presentation is same under both regulative systems.

The company has to keep the presentation and categorization of points in its fiscal statements from period to period, unless:

Clearly it is identified that after a important alteration in the nature of the undertaking or alteration in the fiscal statements ( Grant,2003 ) . Another presentation or categorization would be more appropriate, provided that the company has taken into history the standard for choosing and using accounting policies, as in Article 10 of the accounting estimations and mistakes, or

Standards required a alteration in the presentation itself have been met.

International criterions ( IFRS ) require that for little and average endeavors, the overall consequence of the statement of alterations in belongings rights to be represented. Under GAAP, it is non required in a separate statement of the rights of stockholders, and can expose the difference of capital in the notes to the fiscal statements. Under IFRS the statement of fiscal place shall include the undermentioned sums:

-Cash and hard currency equivalents.

-Receivables and other assets.

-Financial assets

-Stocks.

-Property, works and equipment.

-Real estate investings at just value recognized in net incomes.

-Intangible assets.

-Biological assets are stated at cost less accrued depreciation and depreciation.

-Diversity in the acquired assets at just value.

-Investments in associates.

-Investments in entities subject to joint control.

-Supplies and services.

-Financial liabilities.

-Tax assets and liabilities.

-Deferred revenue enhancement liabilities and deferred revenue enhancement assets ( which are ever long term ) .

-Provisions.

-Provided non-controlling involvements in portions individually from the belongings rights of the proprietors of the parent companies.

-Equity holders of the parent company.

In contrast to the IFRS for little and average endeavors, deferred revenue enhancement assets and liabilities are classified as points of current or long-run for the categorization of assets or liabilities that led to the impermanent difference.

However, over the old ages it has been seen that there is a strong International Support for IFRS

At their April 2, 2009 London Summit, the Leaderships of the Group of 20 agreed as portion of their Declaration to Strengthen the Financial Systemaˆ¦

“ aˆ¦to call on the accounting criterion compositors to

work desperately with supervisors and regulators to

better criterions on rating and provisioning

and accomplish a individual set of high-quality planetary

accounting criterions ”

Many of the remark letters have been written by particular involvement groups and they are non needfully representative of the position in the U.S. Two studies conducted by KPMG in January 2009 show a strong support for IFRS among executives, a study by Grant Thornton conducted in April 2009 shows a 50/50 ‘support ‘ for IFRS.

Remark Letter – IDW

“ We are non convinced that reeling the dealing in the mode proposed is needfully the optimum wayaˆ¦ given the convergence undertaking and attendant increasing similarities between U.S. GAAP and IFRS the passage ought to be less burdensome for U.S.issuers than was the instance for German companies, who faced important challenges in change overing to IFRS from a well different German GAAP. ”

“ True IFRS convergence ought to affect due consideration of other major national GAAP and besides be unfastened to new thoughts instead than being restricted to bing U.S. GAAP. ”

“ aˆ¦ standards by which the Commission plans to measure these factors are non clearaˆ¦ In non bespeaking a steadfast committedness, but basically “ keeping the door unfastened ” the SEC makes the chance of electing for the early usage of IFRS significantly less attractive ; issuers are improbable to be prepared to seek IFRS for a limited period, particularly if they might later necessitate to return back to U.S. GAAP either voluntarily or at the insisting of the SEC. We hence urge the SEC to convey forward its determination and bespeak a steadfast committedness to the passage to IFRS, instead than simply presenting the “ possibility ” of IFRS acceptance. ”

Remark Letter – Abdominal aortic aneurysm

( American Accounting Association )

“ Fiscal statements based on IFRS provide good fiscal studies that are tantamount to those based on U.S. GAAP. We favor giving U.S. companies the pick of utilizing U.S. GAAP or IFRS in their fiscal studies and hope that other legal powers around the universe would work the advantages of giving pick to their ain registrants. This will take to a gradual and partial acceptance of IFRS in the U.S. ”

Michael Hughes

KPMG Global Head of Audit

“ IFRS brings more subject and more asperity. Companies say that if IFRS continue to establish

themselves on economic worlds so they look at their ain concerns otherwise and it helps

them manage themselves better. Companies need to experience the figures are every bit relevant for

decision-making. ”

( KPMG: International Financial Reporting Standards:

Positions on a fiscal coverage revolution, 2006 )

A reappraisal of the assets, equity and other inside informations of:

Ford

Gross US $ 128.954 billion ( 2010 )

Operating income US $ 7.149 billion ( 2010 )

Net income US $ 6.561 billion ( 2010 )

Entire assets US $ 165.693 billion ( 2010 )

Entire equity US $ -642 million ( 2010 )

Employees 164,000 ( 2010 )

Honda

Gross US $ 120.27 billion ( FY 2009 )

Operating income US $ 2.34 billion ( FY 2009 )

Net income US $ 1.39 billion ( FY 2009 )

Entire assets US $ 124.98 billion ( FY 2009 )

Entire equity US $ 40.6 billion ( FY 2009 )

Employees 181,876