Gaap vs. Ifrs Treatment of Leases and the Impact on Financial Ratios

As of January 1, 2011 most of the world financial market economies are using International Reporting Standards (IFRS) as the required framework for financial statements. A non-comprehensive listing includes the European Union Countries, Canada, Australia and New Zealand. In the United States, US Generally Accepted Accounting Principles (GAAP) is still required but adoption of IFRS has support of many accounting firms and professional organizations and is under consideration by the SEC. This case study focuses on differences in the treatment of leases and the impact of these differences on financial statements and selected financial ratios. Students take GAAP financial statements and prepare an IFRS based balance sheet and income statement. The need to understand both GAAP and IFRS rules regarding leases is required to adequately address this case study. This case study is suitable for use at both the undergraduate and graduate levels. It could be used in an Intermediate Accounting II, Accounting Theory, Financial Statement Analysis or an International Accounting class, as well as an Investment Finance course.