IFRS: Canada’s Decision Case Solution & Answer

IFRS: Canada’s Decision Case Solution 

Rules Based Approach Vs the Principles Based Approach

The major differences in the IFRS and the US GAAP arise mainly due to the approaches taken by the two set of standards. The US GAAP is based on the Rules Based approach while the IFRS is based on the principle based approach.

The Principles based approach allows the companies,which are required to comply with the standard,to be flexible to either comply with the principle or if they don’t comply then they can explain the reason for non-compliance. Also, the principle based approach allows the companies to use their own rules and regulations, which should be based on the principles of the standard.Therefore, companies sometimes find different ways of doing the same thing while both methods are correct(Anonymus, 2015).

The rules based approach is the opposite of the principle based approach, in which the companies are provided with detailed provisions of the standard and they are required to comply with these or else they might face fines. The major drawback for this approach was that if loop holes were discovered by the management of the company, then they can make take advantage of it without paying any thing to the governments. The rule based approach is like the cook book for the companies and they are required to follow it in every conditions.

PEST Analysis

In order to further consider the decision, we can perform the PEST analysis to assess the conditions in which the decision to transform to IFRS was taken. Following is the PEST analysis of the AcSB at time when they were planning to converge to International Financial Reporting Standards;

Political

As Canada and U.S have very good political relations and both the countries share the same boundary therefore, many businesses favored converge towards the US GAAP. Moreover, a large amount of listed companies in the Canada were in some way linked to the U.S therefore,the company faced some political issues in making the decision and implementing it.Moreover, people considered it as a fight amongst two standard setting bodies therefore;they did not consider the role of the U.S in the international standard setting board.

Furthermore, the board wanted to develop and adopt such a standard, which has brand recognition as well as it is acceptable at the same time.

Economical

From the economical perspective, US GAAP was meant for the businesses in the US and implementing it in Canada was not practical as it would require significant costs to convert to the US GAAP and after converting to US GAAP, the companies would be required to suffer several recurring costs just to comply with the standard.Therefore, it could be said that it was not feasible for the companies to adopt the US GAAP economically.

Social

Before taking any decision, the board always takes the recommendation of the peoples working in the profession therefore; the accounting standard that needs to be developed requires integration of technology and communication.

Technological

Earlier in the 2005, there was no electronic handbook for the professionals and it was very difficult for them to search for any case related help from the book. Canada was the first country to launch an electronic handbook for its members and students. It allowed people in the profession to perform research more quickly as no such technology existed that allowed the Canadian board to access the US GAAP .On the other hand, there was significant information available on the internet regarding the International Financial Reporting Standards………………..

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