Comparative Analysis of ASC 805 (Business Combinations) Under U.S. GAAP and IFRS

by | Aug 13, 2024 | Accounting

 

BOOK: INTERMEDIATE ACCOUNTING -REPORTING AND ANALYSIS, 3RD EDITION (WALLEN/JONES/PAGACH)

As you identify the differences between U.S. GAAP and IFRS throughout the course, for this research paper you will select one ASC (example: 805/Business Combinations) for a more in depth evaluation and analysis. You are asked to compare and contrast the standard under U.S. GAAP and IFRS for similarities and differences. Include appropriate information related to the FASB Conceptual Framework for additional insight into the causes and reasons behind the differences. Also discuss the plan for convergence of the U.S. GAAP standard with IFRS. If the standard is not converged, discuss the plan for and/or obstacles to convergence. If the standard is converged, discuss the rationale behind any remaining differences between the two sets of standards.

A research paper is an analysis of your research, authoritative with both references and citations listed. The main part of the paper is researching one topic from GAAP (an ASC) and comparing to IFRS.

Sample solution

Dante Alighieri played a critical role in the literature world through his poem Divine Comedy that was written in the 14th century. The poem contains Inferno, Purgatorio, and Paradiso. The Inferno is a description of the nine circles of torment that are found on the earth. It depicts the realms of the people that have gone against the spiritual values and who, instead, have chosen bestial appetite, violence, or fraud and malice. The nine circles of hell are limbo, lust, gluttony, greed and wrath. Others are heresy, violence, fraud, and treachery. The purpose of this paper is to examine the Dante’s Inferno in the perspective of its portrayal of God’s image and the justification of hell. 

In this epic poem, God is portrayed as a super being guilty of multiple weaknesses including being egotistic, unjust, and hypocritical. Dante, in this poem, depicts God as being more human than divine by challenging God’s omnipotence. Additionally, the manner in which Dante describes Hell is in full contradiction to the morals of God as written in the Bible. When god arranges Hell to flatter Himself, He commits egotism, a sin that is common among human beings (Cheney, 2016). The weakness is depicted in Limbo and on the Gate of Hell where, for instance, God sends those who do not worship Him to Hell. This implies that failure to worship Him is a sin.


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God is also depicted as lacking justice in His actions thus removing the godly image. The injustice is portrayed by the manner in which the sodomites and opportunists are treated. The opportunists are subjected to banner chasing in their lives after death followed by being stung by insects and maggots. They are known to having done neither good nor bad during their lifetimes and, therefore, justice could have demanded that they be granted a neutral punishment having lived a neutral life. The sodomites are also punished unfairly by God when Brunetto Lattini is condemned to hell despite being a good leader (Babor, T. F., McGovern, T., & Robaina, K. (2017). While he commited sodomy, God chooses to ignore all the other good deeds that Brunetto did.

Finally, God is also portrayed as being hypocritical in His actions, a sin that further diminishes His godliness and makes Him more human. A case in point is when God condemns the sin of egotism and goes ahead to commit it repeatedly. Proverbs 29:23 states that “arrogance will bring your downfall, but if you are humble, you will be respected.” When Slattery condemns Dante’s human state as being weak, doubtful, and limited, he is proving God’s hypocrisy because He is also human (Verdicchio, 2015). The actions of God in Hell as portrayed by Dante are inconsistent with the Biblical literature. Both Dante and God are prone to making mistakes, something common among human beings thus making God more human.

To wrap it up, Dante portrays God is more human since He commits the same sins that humans commit: egotism, hypocrisy, and injustice. Hell is justified as being a destination for victims of the mistakes committed by God. The Hell is presented as being a totally different place as compared to what is written about it in the Bible. As a result, reading through the text gives an image of God who is prone to the very mistakes common to humans thus ripping Him off His lofty status of divine and, instead, making Him a mere human. Whether or not Dante did it intentionally is subject to debate but one thing is clear in the poem: the misconstrued notion of God is revealed to future generations.

 

References

Babor, T. F., McGovern, T., & Robaina, K. (2017). Dante’s inferno: Seven deadly sins in scientific publishing and how to avoid them. Addiction Science: A Guide for the Perplexed, 267.

Cheney, L. D. G. (2016). Illustrations for Dante’s Inferno: A Comparative Study of Sandro Botticelli, Giovanni Stradano, and Federico Zuccaro. Cultural and Religious Studies, 4(8), 487.

Verdicchio, M. (2015). Irony and Desire in Dante’s” Inferno” 27. Italica, 285-297.

Sample Answer

Sample Answer

Comparative Analysis of ASC 805 (Business Combinations) Under U.S. GAAP and IFRS
Thesis Statement
While U.S. GAAP and IFRS both aim to provide a comprehensive framework for accounting for business combinations, significant differences remain in their approaches, particularly in the treatment of goodwill, measurement of non-controlling interests, and the recognition of contingent liabilities. Understanding these differences through the lens of the FASB Conceptual Framework reveals the underlying reasons for these disparities, as well as the challenges and potential pathways toward convergence.
Introduction
Business combinations are a critical aspect of modern corporate strategy, impacting financial statements and stakeholder perceptions. Both U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) provide guidance on accounting for these combinations, specifically through ASC 805 under GAAP and IFRS 3. This paper will evaluate the similarities and differences between these two frameworks, incorporating insights from the FASB Conceptual Framework to explain the rationale behind these variations. Additionally, the paper will address the current status of convergence efforts, highlighting obstacles and potential pathways.
Similarities Between U.S. GAAP and IFRS
Both U.S. GAAP and IFRS share foundational principles concerning business combinations:
1. Acquisition Method: Both standards require the use of the acquisition method for accounting for business combinations. This involves identifying the acquirer, determining the acquisition date, recognizing and measuring identifiable assets acquired and liabilities assumed, and recognizing any non-controlling interest in the acquiree.
2. Measurement of Assets and Liabilities: Under both standards, assets acquired and liabilities assumed are measured at fair value on the acquisition date.
Key Differences Between U.S. GAAP and IFRS
Despite these similarities, notable differences exist:
1. Goodwill
– Measurement: Under U.S. GAAP, goodwill is calculated as the excess of the purchase price over the fair value of identifiable net assets acquired. Conversely, IFRS allows for a “negative goodwill” situation where the fair value of net identifiable assets exceeds the purchase price, which must be recognized in profit or loss immediately.
– Impairment Testing: U.S. GAAP requires an annual impairment test for goodwill, while IFRS permits a more flexible approach that allows companies to test goodwill for impairment at a more frequent interval if indicators suggest a potential decline in value.
2. Non-controlling Interests (NCI)
– Measurement: U.S. GAAP requires that NCI be measured at fair value on the acquisition date, without any option to measure it at the proportionate share of the acquiree’s identifiable net assets as allowed by IFRS. This difference can result in divergent recognition of NCI on financial statements.
3. Contingent Liabilities
– Recognition Criteria: U.S. GAAP requires that contingent liabilities be recognized if they are probable and can be reasonably estimated, leading to potentially higher liabilities recorded at acquisition. IFRS, on the other hand, requires a broader recognition criterion that may allow for more contingent liabilities to be recognized based on a likelihood assessment.
The FASB Conceptual Framework
The differences in ASC 805 and IFRS 3 can be further understood through the FASB Conceptual Framework, which outlines objectives and qualitative characteristics fundamental to financial reporting. The emphasis on relevance and faithful representation in U.S. GAAP leads to stricter recognition criteria for certain elements, such as contingent liabilities. Meanwhile, IFRS’s broader principles-based approach allows for more flexibility but may compromise comparability.
Convergence Efforts
The convergence between U.S. GAAP and IFRS has been an ongoing endeavor spearheaded by both FASB and IASB (International Accounting Standards Board). While progress has been made in many areas, business combinations remain one of those standards where significant divergences persist.
Obstacles to Convergence
1. Philosophical Differences: The fundamental differences in approach—rules-based versus principles-based—pose substantial challenges.
2. Regulatory Environment: The regulatory frameworks governing accounting practices differ significantly between jurisdictions, complicating convergence efforts.
Conclusion
In conclusion, while ASC 805 under U.S. GAAP and IFRS 3 share core principles related to business combinations, significant differences remain regarding goodwill measurement, treatment of non-controlling interests, and recognition of contingent liabilities. Insights from the FASB Conceptual Framework illustrate how these standards reflect differing priorities in financial reporting. As convergence efforts continue, understanding these distinctions will be crucial for practitioners navigating this complex landscape.
References
1. Financial Accounting Standards Board (FASB). (2021). Accounting Standards Codification.
2. International Accounting Standards Board (IASB). (2021). International Financial Reporting Standards.
3. Schipper, K., & Vincent, L. (2003). Earnings Quality. The Accounting Horizon.
4. KPMG. (2021). IFRS vs US GAAP: A Comprehensive Comparison.
This structure provides a clear and organized analysis suitable for a research paper on ASC 805’s comparison with IFRS 3 while adhering to academic standards with appropriate citations and references.

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