Running head: CASE STUDY 4 IFRS ADOPTION 1

Case Study: IFRS Adoption in the U.S.

Liberty University
CASE STUDY 4: IFRS ADOPTION 2

Question 1: Using the Royal Dutch Shell excerpts, identify the similarities and differences

between U.S. GAAP and IFRS regarding accounting for property, plant, and equipment.

- Similarities:

- Both the GAAP and IFRS use depreciation methods which are very much alike

with both standards using the units of production and straight line methods.

- Both standards use the cost method when accounting for tangible long-lived

assets.

- Both standards also use the same methods for amortization and determining

which assets are deemed intangible with some minor differences in rules

regarding values.

- Both standards measure impairments with long-term assets and require that all

assets, tangible and intangible be impaired.

- Both standards also review the indefinite-lived tangible assets annually for

impairment.

- Differences:

- While both standards use the cost method for accounting tangible long-lived

assets, the IFRS differs from the GAAP in that it also uses the revaluation

method.

- Under the IFRS method, impairment losses are able to be overturned in following

years under certain circumstances. This is not allowed under the GAAP

standards.
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- While both standards have similarities in determining which assets require review

for impairment, there are events that could occur that would require a review

under IFRS but not under GAAP.

- Due to the IFRS standards including events that could potentially trigger an

impairment review, impairments under the IFRS tend to be more frequent;

however, also in smaller amounts.

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Analysis

The generally accepted accounting principles, or GAAP, are a set of accounting standards

put into place which must be followed by all public organizations within the United States. The

standards put into place by the GAAP are an effort to provide consistency in financial reporting

as this information is used by stakeholders, shareholders, investors, etc. to make major business

decisions. The international financial reporting standards, or IFRS, are a set of accounting

standards that were put into place to allow for, not only transparency in financial reporting, but

also consistency from one country to another. The purpose of the introduction of the IFRS was

to remove the possibility for uncertainties and non-clarity in the financial reporting process

(Ergüden, 2020). While there are several similarities between the two accounting standards,

there are also several key differences between the two (Revsine, Collins, Johnson, Mittelstaedt,

& Soffer, 2021). We see these differences in place when companies employ both standards

when preparing financial statements.

The Royal Dutch Shell company is a global company that is publicly traded in the stock

exchange and has adopted both the U.S. generally accepted accounting principles, GAAP, as

well as the international financial reporting standards, IFRS. The financial data reviewed for this

analysis are for the years 2013 through 2015. The information provided is broken down into

depreciation, depletion and amortization as well as impairment.

When looking at depreciation, depletion, and amortization, we would review tangible and

intangible assets. Both the GAAP standard as well as the IFRS standard use the same methods

for amortization and determining which assets are deemed either tangible or intangible. Tangible

assets are the physical assets such as property, land, equipment, etc. Intangible assets are the

non-physical assets such as goodwill, branding, trademarks, etc. When looking at the data for
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the target company, we see the tangible assets that the Royal Dutch Shell company has listed

such as property, plant and equipment explained to be refineries and chemical plants, retail

stations, and upgraders as well as intangible assets such as software and trademarks. When

accounting for tangible long-lived assets, the target company will see similarities between

accounting for GAAP purposes as well as IFRS purposes in that both reporting standards use the

cost method. Differing from the GAAP; however, the IFRS also allows the use of the

revaluation method when accounting for tangible long-lived assets.

Impairment, in reference to accounting, is the reduction of value of an asset due to loss of

quality, or a drop in market value, etc. If an asset is reviewed and a loss of value recognized, the

contract for the asset is then considered impaired (Revsine, et al., 2021). While both standards

have similarities in determining which assets require review for impairment, there are events that

could occur that would require a review under IFRS but not under GAAP. Because IFRS

standards include accounting events that could potentially trigger an impairment review,

impairments under the IFRS tend to be more frequent; however, also in smaller amounts.

Over the periods from 2013 and 2015, Royal Dutch Shell reviewed several assets for

losses including exploration and production assets as well as manufacturing, supply and

distribution assets. Under the IFRS method, impairment losses are able to be overturned in

following years under certain circumstances. This is not allowed under the GAAP standards.

Using the IFRS standards, Royal Dutch Shell was able to show impairment reversals for

exploration and production assets as they met the criteria allowing for the reversal.
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References

Ergüden, A. E. (2020). Ifrs 15. International Journal of Finance & Banking Studies (2147-

4486), 9(1), 47-57. doi:10.20525/ijfbs.v9i1.650

Revsine, L., Collins, D. W., Johnson, W. B., Mittelstaedt, H. F., & Soffer, L. C. (2021).

Financial reporting & analysis. New York, NY: McGraw-Hill Education.