Key Assignment Outline
Tenika J Tassin
ACCT430-1703B-01
With the increase call for convergence between different accounting and reporting bodies to the international financial reporting standards, the US GAAP, IASB, AASB and other bodies have focused their attention to the same fact. This has led to different stakeholders being affected positively as well as negatively.
In order to evaluate the effect of convergence to IFRS on Nike Inc. it will be prudent to understand the effects of IFRS on the financial reporting of Nike Inc. These effects will include the disclosure and accounting of financial instruments, leases, Revenue recognition, Fair value measurement, Consolidations, Presentation of other comprehensive income and the Insurance contracts.
Reporting dates
A good illustration that will affect the convergence is the financial year end in the two bodies. Nike has its year end at 31st May of every calendar year whereas IFRS has its calendar year ending at 31st December of very year. This means that the company will have to change its financial year end in order to suit the new requirement of reporting at every 31st of December.
Changes to State and Federal Taxable Income from Book Income
Due to the change to the IFRS, Nike will have to change its federal taxable income. Before the change, the company used its book income statement and the balance sheet to compute its taxable base but due to the convergence to IFRS and will start to point at the state and federal taxable income. Nike Inc. as well as other companies will be affected from complication of obtaining relief especially if the IRS fails to offer guidance on how to provide relief with the new framework.
Revaluation
IAS 16 governs Property, Plant, and Equipment where the revaluation and cost model are the major disclosure in this standard. Under the US GAAP, the cost model is only considered. The revaluation model discloses how assets are to be valued at fair market values less impairment and accumulated depreciation. Since revaluations will be conducted frequently, Nike may find itself recognizing more expenses. This is backed by the fact that revaluations increase value which will lead to higher value that is credited under the revaluation surplus. The accumulated equity will therefore impact the company’s capital based tax liabilities and the net worth.
Revenue recognition
Under the IAS 18, revenue is disclosed to be considered when the economic value of benefit will be obtained in the future and when the revenue amount can be measured with reliability. Though the US GAAP has its disclosure being similar to this the only difference stems from the fact that certain items are deferred and accelerated which will affect the tax position of the company. The company will also be affected by the fact that the IFRS recognizes gross receipt taxes which were not recognized under the US GAAP.
Other items that will be affected include the company’s payroll in the case where the company compensates some of its staff (directors) using the issues of stock based remuneration. The move to IFRS will have the company moving from using Last in first out method of valuation which will affect the valuation and revaluation of inventory in the firm.
Tax position
Tax positions of the firm that is handled by the IAS 12 Income taxes will now be handled by FAS 109. The new standard has failed to address the accounting of uncertain tax positions.
References
Daske, H., Hail, L., Leuz, C., & Verdi, R. (2013). Adopting a label: Heterogeneity in the economic consequences around IAS/IFRS adoptions. Journal of Accounting Research, 51(3), 495-547.
Palepu, K. G., Healy, P. M., & Peek, E. (2013). Business analysis and valuation: IFRS edition. Cengage Learning.
