The International Accounting Standards Board states that accounting regulations are a shared collection of concepts, standards, and procedures that form the foundation of financial accounting policies and practices. These principles, which have been included in accounting standards, contribute to improving systematic bookkeeping and other accounting tasks between enterprises and across time and industries. This results in the highest possible level of financial reporting openness in all countries. Generally accepted accounting principles (GAAP) are the cornerstone of accounting standards in the United States. For example, they are widely used in the preparation of financial statements in that country (Caputo et al., 2019). The International Financial Reporting Standards (IFRS), which are actively set by the International Accounting Standards Board and serve as guidance for non-U.S. corporations in reporting financial accounts, have been accepted by many companies around the world.
The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have made significant progress in bridging major differences between accounting practices in the United States and the rest of the world. Despite the progress, many issues remain unresolved and continue to pose a significant threat to the profits and losses of many businesses worldwide (Caputo et al., 2019). This results in extensive research into finding solutions to such problems to maximize profitability in many enterprises.
Procter & Gamble Pharmaceutical is a company based in the United States that has adopted the United States accounting reporting standards is Procter & Gamble Pharmaceutical. It is the responsibility of this corporation to manufacture and process significant products used in the kitchens and bathrooms of major families throughout the world. Diapers, fabric care products like downy, and feminine care goods like pads are examples of these items. Johnson and Johnson is yet another pharmaceutical business situated in the United States that has benefited substantially from applying International accounting reporting standards. The company is primarily interested in developing vaccinations and the research of innovative treatment approaches for diseases such as cancer, amongst other things (Caputo et al., 2019). The corporation is based in the United States, primarily in New Jersey.
There are significant parallels and variances between international and U.S accounting reporting. Still, there are significant disparities between the two kinds of accounting reporting, as shown below. Over one hundred and ten countries worldwide have adopted international accounting reporting (Tambingon et al., 2018). However, the United States continues to use the accounting system developed in the United States. The result of these discrepancies has been extensive research to determine the best appropriate method of account reporting.
These two systems have significant disparities in several areas, including inventory techniques, inventory reversal, and income statements. The following are the primary distinctions between the two systems: However. At the same time, the United States accounting reporting or the Generally Accepted Accounting Principles (GAAP) employs the latest in first out (LIFO) approach for inventory estimations; foreign accounting reporting does not allow for this form of inventory estimation. According to generally accepted accounting principles (GAAP) (NAV), the cost of inventory is reported as the lesser of its net asset value or its cost, according to generally accepted accounting principles (GAAP) (NAV) (Tambingon et al., 2018). The Financial Accounting Standards Board (FASB), the institution responsible for interpreting and revising the Generally Accepted Accounting Principles (GAAP), has jurisdiction over the matter.
This is a relatively small intersection between the two forms of account reporting since each uses the phrase net realizable value to signify somewhat different things in their respective senses of the word. In International Accounting Reporting, net realizable value is typically defined as the value equal to the expected selling price minus any reasonable costs associated with the sale of a good or service. In the United States accounting reporting or the General Accepted Accounting Principles (GAAP), net realizable is commonly referred to as the best approximation of how much inventory is projected to be realized in the short term.
In addition, there is a significant difference between the two types of accounting reporting as reflected in the income statement. The most significant distinction between Generally Accepted Accounting Principles (GAAP) and International Accounting Reporting is that GAAP uses a cost model to valuation fixed assets. In contrast, international accounting reporting uses a revaluation model for the value of fixed assets (Tambingon et al., 2018). Development costs are treated as expenses under Generally Accepted Accounting Principles (GAAP) and cannot be capitalized. However, development costs are massively capitalized under International Accounting Reporting (IAR).
However, there are many parallels between these two systems of Accounting Reporting that can be observed. These resemblances can be found in characteristics such as both of their consideration of benevolence. When one firm acquires another, it creates an intangible asset known as goodwill. It mostly consists of reputation, brand, and commercial secrets, among other things. These accounting reporting systems treat goodwill as an intangible asset that must regularly be evaluated for potential impairment loss (Downing & Langli, 2019). According to generally accepted accounting standards, an impairment loss is typically the amount the carrying amount exceeds the implied fair value in the reporting unit in the reporting period. The international accounting reporting procedure follows a step-by-step procedure that compares the carrying amounts and the recoverable amounts in each phase.
Over the past few years, significant efforts have been undertaken to bring these two accounting standards closer. This is due to the fact that, over time, both accounting standards continue to converge and overlap in important elements that are supposed to serve as profit maximization boosters. International accounting standards, which have been embraced by more than fifty percent of the world’s countries, have proven to be the most straightforward and convenient form of accounting standardization (Downing & Langli, 2019). This is because the bulk of its ideas overlaps with many other values throughout the world, resulting in its widespread adoption. To make it easier to integrate both systems, efforts have been made to create a single global accounting standard that is consistent across all jurisdictions. The huge volume of trade will allow for the realization of maximum profits in all enterprises worldwide.
In the case of these pharmaceutical products manufactured by both the J&J Company and Procter and Gamble Pharmaceutical, the cost of these products is significantly influenced by the brand name of the specific company, which is influenced significantly by the accounting standard that has been adopted (Tambingon et al., 2018). It can be influenced by the product’s availability and the effectiveness of the product in the market. Customers may prefer sanitizers from Johnson and Johnson over sanitizers from Procter and Gamble Pharmaceutical, for example, because of the effectiveness of their products. This will have a significant impact on their global sales.
Johnson & Johnson uses them to ensure that they adhere to their worldwide accounting reporting standards, which allows them to expand their consumer base. This is since their ideas cross with many different policies in different countries, allowing for a diverse variety of trade. To summarize, each of these accounting reporting methods has significant shortcomings and advantages. On the other hand, the international accounting standards outweigh the generally accepted accounting principles due to the ease with which critical data may be accessed.
References
Caputo, F., Leopizzi, R., Pizzi, S., & Milone, V. (2019). The non-financial reporting harmonization in Europe: Evolutionary pathways related to the transposition of the Directive 95/2014/EU within the Italian context. Sustainability, 12(1), 92. Web.
Downing, J., & Langli, J. C. (2019). Audit exemptions and compliance with tax and accounting regulations. Accounting and Business Research, 49(1), 28-67. Web.
Tambingon, H. N., Yadiati, W., & Kewo, C. L. (2018). Determinant factors influencing the quality of financial reporting local government in Indonesia. International Journal of Economics and Financial Issues, 8(2), 262. Web.