As International Financial Reporting Standards (IFRS) replace Generally Accepted Accounting Practices (GAAP), management decisions could be affected. The biggest difference is in the treatment of R&D which is expensed under GAAP whereas"D" is capitalized under IFRS. So, for example, only $10 of a $100 dollar R&D expenditure, amortized over ten years, would show up on an IFRS income statement.
If a firm's R&D budget is mechanically tied to last year's accounting expenditures, which is often the case for cost centers, then budgets could be automatically reduced when a firm switches from GAAP to IFRS. I just heard that a big Fortune company, whose competitive advantage is linked to R&D, inadvertently cut its R&D budget when they switched to IFRS.
I would be interested to hear about other management problems created by the change from GAAP to IFRS.
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