GAGE UNIVERSITY COLLEGE
DEPARTMENT OF MBA
FINANCIAL AND MANAGERIAL ACCOUNTING GROUP ASSIGNMENT #1
Prepared By: Ahmedin Sherefa ------------------ MMBA/378/14
Derbew Tafere ----------------------MMBA/264/14
Dereje Gemechu -------------------- MMBA/261/14
Eyerusalem Abebe ------------------ MMBA/261/14
Habtamu Siyoum -------------------- MMBA/260/14
Selam Tsegaye -----------------------MMBA/248/14
Submitted to: Mr. Yonas M. (Asst. Prof)
Submission Date: 12/12/2021
1. What is the difference and similarity between GAAP and IFRS?
Difference between GAAP and IFRS
GAAP is rule-based, whereas IFRS is principle-based.
The methodology used to assess an accounting treatment under GAAP, the researcher is
more focused on the literature whereas under IFRS, the review of the facts pattern is more
thorough.
Consolidation-IFRS favors a control model whereas GAAP prefers a risks-and-rewards
model.
Statements of income-under IFRS, extraordinary items are not segregated in the income
statement. With GAAP, they are shown below the next income.
Inventory-under IFRS, LIFO cannot be used, but GAAP, companies have the choice
between LIFO and FIFO
Development Cost-the costs can be capitalized under IFRS if certain criteria are met, while
it is considered as expenses under U.S. GAAP.
Earning-per-share-under IFRS, the earning per-share calculation does not average the
individual interim period calculation, whereas under GAAP the computation averages the
individual interim period incremental shares.
Similarity between GAAP and IFRS
GAAP and IFRS are alike in many ways, thus making the convergence realizable task. The
conceptual frameworks of both methods are very similar in:
Structure
Referring to their accounting objectives
Elements
Qualitative characteristics
Both standards use an income statement
Balance sheet
Statement of cash flow
Prepare financial statements on an accrued basis: meaning revenue is recognized when it is
realized.
Help in complete convergence in the near future.
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2. Is it time to shift IFRS to Ethiopia? Why? Why not?
In order to ensure timely transition to IFRS in Ethiopia, trained Accountants and Auditors in
IFRS are required in large number. Ethiopia currently does not have the sufficient number of
IFRS trained Accountants and Auditors for each respected office. The board has currently started
to provide IFRS Training programs and provide support with regards. Yet there exists a large gap
in the Trained Professionals required and trained professional available is the main challenge. So
awareness and proper Training should contribute to IFRS adoption as well as an Advisor is also
required for proper IFRS implementation in Ethiopia that will contribute IFRS very fruitful and
accurate. (Worku, S. 2018)
Even though IFRS is required for a certain type of institution, Ethiopia lacks resources to
implement IFRS properly and it also does not have an authoritative body for accounting which
can guide and dictate the implementation of IFRS. (Alemayehu, 2009; Minney, 2011).
Adopting IFRS as a national standard will have significant benefits for countries to improve
corporate transparency that is required by investors and the public. Many countries are currently
migrating to IFRS by abandoning their national accounting standards. This is an opportunity for
countries like Ethiopia, which do not have national accounting standards even if transiting to
international standards with weak financial reporting practices in the country may pose many
challenges that must be overcome through time. (Gizaw, n.d).
It is essential that the Ethiopian government should support adoption of IFRS. The government
should also open training for accountants about IFRS and encourage its adoption, since adoption
of IFRS could attract foreign direct investment, which in turn may lead to economic growth.
(Fikeru, F. 2012).
IFRS has become the financial reporting standard for a significant amount of countries around
the world. The decision of IFRS adoption would be the right choice for Ethiopia to strengthening
the country’s quality of financial information that played a major role for attracting efficient
capital inflows to the country and encourage domestic investments. However, number of
practical implementation challenges needs to address to utilize the full benefits of adopting IFRS.
weak corporate governance, poor quality of education and training, lack of supports from
accountancy professional bodies, weak enforcements of regulatory body, inadequacy of
transition period, improper planning, Non-availability of transparent market information,
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High cost of implementation and weak management support are the major challenges to
implement IFRS successfully. (Agumas, A.B. 2018).
CONCLUSION
According to the above study results we have concluded that, there are different challenges
during the Adoption of IFRS in Ethiopia. Although IFRS Adoption in Ethiopia has many
problems, it will have significant benefits to Ethiopia to improve corporate transparency that is
required by investors and the public.
Therefore, it’s time to shift IFRS to Ethiopia, since adoption of IFRS could attract foreign
direct investment, which in turn may lead to economic growth. And challenges during the
Adoption of IFRS would be overcome through time.
