Assignment #1: Case 3 “Merck, the Fda, and the Vioxx Recall”

Writing Assignment #1 – IFRS and GAAP Convergence Describes IFRS and GAAP and what convergence means. Analyzes how convergence will affect public companies, accounting firms, and small and medium companies. Evaluates at least three significant differences and similarities between IFRS and GAAP and the impact these similarities and differences can have on financial statements. Recommends three ways companies can prepare for IFRS and GAAP convergence. Evaluates three potential risks of IFRS and GAAP convergence.

Tim Ebert

ACC304: Intermediate Accounting II - Quarter (Spring 2011)

Professor: Richard L. Hendershot, CPA

February 22, 2011

IFRS AND GAAP CONVERGENCE

1. Describe IFRS and GAAP and what convergence means.

Generally Accepted Acounting Principles (GAAP). GAAP has a specific meaning for accountants and auditors and is nearly synonymous with conformity. As long as an accountant uses GAAP as his guide and does not stray far from its principles his/her work will stand up to an audit. The AICPA Council designated FASAB as the body that establishes generally accepted accounting principles (GAAP) for federal reporting entities. FASAB is responsible for identifying the “GAAP hierarchy” for federal reporting entities. The sources of GAAP are listed below and categorized in descending order of authority as follows:

“1. Officially established accounting principles consist of FASAB Statements of Federal Financial Accounting Standards (Standards) and Interpretations. FASAB Standards and Interpretations will be periodically incorporated in a publication by the FASAB.

2. FASAB Technical Bulletins and, if specifically made applicable to federal reporting entities by the AICPA and cleared by the FASAB, AICPA Industry Audit and Accounting Guides.

3. Technical Releases of the Accounting and Auditing Policy Committee of the FASAB.

4. Implementation guides published by the FASAB staff, as well as practices that are widely recognized and...