Running header: ACCOUNTING REPORTING
Running header: ACCOUNTING REPORTING
Similarities and Differences: Ford and Toyota Accounting Reporting
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Using Accounting Reporting Criteria
The globalization of the business environment provides opportunities and challenges to companies, their shareholders, and other users of financial information. Accounting reporting criteria differs between the Generally Accepted Accounting Principles (GAAP) in the United States, the Financial Accounting Standards Board (FASB) in the United States, and the International Accounting Standards Board (IASB) in other countries worldwide. The International Accounting Standards Committee (IASC) became the IASB in 2001 as a means to address the disparity of international financial markets. Ford Motor Company and Toyota both realize the need for proper financial accounting reporting, thus adhering to accounting standards according to accounting requirements in their origin nations. A person must understand the differences between the FASB and the IASB in order to examine the similarities and differences between the accounting statements of Ford, a U.S.-based company, and Toyota, a Japanese company.
Comparisons exist between Japanese accounting practices and U.S. GAAP include the layout of the balance sheet and the income statement (no general requirement with respect to a specific layout in the preparation of the balance sheet and income statement), equity investments over which the investor has a significant influence (APB 18 and IAS 28), and the equity method of accounting for equity investments is “consistent under both GAAPs, according to Ernst & Young (2008, p. 7). Another similarity is that both Ford and Toyota use similar recognition criteria in their accounting models, as costs must be included in the cost of an asset if such costs can be reliably measured and if future economic benefits are probable.
Differences still exist in the preparation of financial statements in the United States and Japan, causing problems for the users of financial information. In the United States, Ford must recognize a contingency when “the contingency is resolve beyond a reasonable doubt,” while Toyota can recognize a contingency when such contingency is probable (more likely to occur than not occur) to occur and can be measured reliably. Presentation of non-controlling (minority) interest is presented outside of the balance sheet for U.S. companies, while Japanese companies can present minority interest under equity, though as a separate component, on the balance sheet. Another difference is the use of LIFO as an inventory reporting method in the United States, while LIFO is not allowed in the preparation of financial statements by the IASB.
Companies will continue to operate within their national borders and as multinational companies; as such, differences in accounting standards will plague the preparers of financial statements for such companies. The convergence of U.S. GAAP and IASB standards will continue to occur because of the need for financial information that does not need adjustment across national boundaries. Ford and Toyota will continue to be influenced by the changes implemented by the convergence projects of the FASB and the IASB, so accounting standards might eventually become similar; however, such standards in accounting reporting will remain different because of the various factors affecting the operations and financial aspects of multinational and international entities.
References
Ernst & Young. (2008). US GAAP vs. IFRS: The basics. Retrieved January 3, 2009, from the Web site:
Schroeder, R.G., Clark, M.W., & Cathey, J.M. (2005). Financial Accounting Theory and Analysis: Text Readings and Cases (8th Ed.). Hoboken, NJ: John Wiley & Sons.
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