Peer #1 Britni Haley

According to Remi Forgeas (2008), IFRS guidelines for the income statement do not allow the inclusion of a category for extraordinary items, while U.S. GAAP did allow a line in the income statement for extraordinary items. These items are defined as infrequent and unusual (Epstein, n.d.).

One common item included as an extraordinary item around the 2007-2008 mortgage crisis was the gain or loss of goodwill from acquisitions gone bad. This could manipulate the operating income to appear greater with the extraordinary item separated from regular operations.

This difference in U.S. GAAP and IFRS was updated in the 2015 FASB update No. 2015-1, where the FASB standard eliminated the exception for extraordinary expenses and moved toward IFRS standards. The objective of eliminating differences between the IFRS and U.S. GAAP financial reporting standards is to simply the accounting practice. The elimination of this difference will also simplify the process for preparers of financial statements who will no longer have to determine whether certain expenses are infrequent and unusual.

The IFRS method simplifies the accounting process and is more objective than analyzing whether expenses should be classified as infrequent and unusual. I believe that this method is the better method, and I think that any abnormalities in operating income that would otherwise be classified as an extraordinary item can be explained in the disclosures and notes to financial statements.

Peer #2 Gretchen Carpenter

IFRS and U.S. GAAP are not fully converged, and many differences exist between these two sets of standards (Hoyle et. al, 2017, p 533). One of the major differences lies in the conceptual approach: U.S. GAAP is rule based, whereas IFRS is principle-based (Forgeas, 2008). Another main difference between IFRS and U.S. GAAP is the use of LIFO as an inventory valuation method. Under GAAP regulations, companies have the option of using LIFO or FIFO but IFRS does not allow this method at all. LIFO stands for last in first out, meaning the last item of inventory purchased by the company is the first one sold. With that being said, the cost of the most recently acquired inventory will always be higher than the cost of earlier purchases, so the ending inventory balance will be valued at earlier costs, while the most recent costs appear in the cost of goods sold(Bragg, 2019). The LIFO method is normally utilized by companies that have larger inventories because this method understates the value of inventory. For taxes purposes, I can see why IFRS would prohibit this inventory valuation method because companies could easily take advantage by “reducing” their profitability in the current year and deferring tax liabilities. Since this method does not provide a true indication of ending inventory, LIFO results in lower net income because the cost of goods sold is higher (Kenton, 2019). Many companies that do use the LIFO method normally notate ending inventory in the financials using the LIFO and FIFO method in an effort to provide full disclosure to management and investors. I currently work for an automotive company that uses the LIFO method because the prices of inventory tend to fluctuate frequently, however, we disclose the amounts of inventory in the notes to the financials comparing LIFO to FIFO.