H&M: The Challenges of Global Expansion and the Move to Adopt International Financial Reporting Standards

Table of ContentsQ-1- If an investor wants to compare the financial results of the Gap, Inditex, and H&M, what difference does it make that their financial statements are prepared according to different GAAP? Would you expect there to be a big difference between U.S. GAAP as used by the Gap and IFRS as used by H&M and Inditex?.........................................................................................................3

Q- 2- What are the major sources of influence on H&M’s accounting standards and practices?...4

References........................................................................................................................................6

Q-1- If an investor wants to compare the financial results of the Gap, Inditex, and H&M,

what difference does it make that their financial statements are prepared according to

different GAAP? Would you expect there to be a big difference between U.S. GAAP as

used by the Gap and IFRS as used by H&M and Inditex?

As per Daske (2006), it is exceptionally hard to just rundown every one of the contrasts between

US GAAP and IFRS identified with revenue acknowledgment. The reason is that the direction

on revenue acknowledgment is fundamentally broader in US GAAP than in IFRS. For investors,

it is essential for them to think about the world's two key accounting frameworks took after

around the world. Proper accounting rules (GAAP) and International Financial Reporting

Standards (IFRS). GAAP is utilized essentially as a part of the United States, in spite of the fact

that the Security and Exchange Commission is hoping to change to IFRS by 2015, the

framework utilized as a part of the European Union and numerous different nations. Numerous

nations have their own particular accounting frameworks, albeit most fit in with one principle

framework or alternate as they work to keep their markets current (Li, 2010).

IFRS were set up and adopted by more than one hundred nations over the world so that the

world's organizations will move to these standards to help investors and agents everywhere

throughout the world better comprehend the financial circumstance of organizations they put

resources into, work with, or stretch out credit to. For this situation, at the theoretically level,

IFRS is viewed as all the more a "principles based" accounting standard rather than U.S. GAAP

which is viewed as more "guidelines based." By being more "principles based", IFRS,

apparently, speaks to and catches the financial aspects of an exchange superior to anything U.S.

GAAP. As the second biggest retailer, H&M watched a noteworthy enlargement by more than

ten percent and anticipated that would enhance later on. Notwithstanding its international

vicinity, the organization is exclusively in the Stockholm stock exchange in Sweden and thus

utilizes the IFRS acknowledged by the European Union so as to show their financial statements

in both Swedish and English. Each of the three organizations, Gap Inditex and H&M originate

from distinctive surroundings by method for standards adopted by them (Capkun, 2008).

The choice of interest in this circumstance matters a great deal. On the other hand, as

demonstrated by Yip and Young (2012), these distinctions are prone to bring about real changes

in any organization's accounted for results; an organization with incredible results under GAAP

won't look repulsive under IFRS, unless it got those results with an exceptional thing, which is

an occasion that doesn't happen all the time, for example, a merger or a corporate rebuilding.

What's more, in light of the fact that uncommon things are unveiled, somebody taking a gander

at the financial statements would have the capacity to make the alteration effortlessly. In this

way, organizations ought to have one international accounting dialect which is helpful for

examination of statements, comprehension, and sparing expenses for international organizations

and in addition makes simple for investors to take vital decisions before investing (Ernstberger,

2008).

Q- 2- What are the major sources of influence on H&M’s accounting standards and

practices?

It is imperative to see how ecological factors shape accounting reporting and revelation standards

with a specific end goal to anticipate the advancement towards harmonization endeavors. A few

factors, for example, society change next to no after some time and in this way may ruin these

endeavors, while different variables, for example, economic ties are more dynamic due

globalization. The appropriation of international accounting standards gives another venue where

these factors may be connected with accounting advancement (Daske, 2006). It makes a point to

satisfy the enlistment's commitment and legitimate documentation of the accounting data that is

requested by the accounting standards, principles, practices and laws of Sweden. H&M likewise

guarantees that the review done inside of the organization involves the audit of the financial

issues and inner control arrangement of the organization. The part of consistence with the laws

and regulations likewise impacts the accounting standards and practices of the organization (Yip

& Young, 2012).

The report of the financial statements and the going concern suspicion of the organization are in

consonance with the genuine financial statements of the organization. The accounting standards

of H&M are likewise affected by the concept of conservatism, which is one of the most

established and most compelling concepts of valuation in accounting. It says that if there should

be an occurrence of dicey circumstances, the organizations ought to choose the accounting

options that have the slightest probability to exaggerate the assets and benefits of the

organization (Hamberg, 2011). The organization ought to embrace the full IFRS (International

Financial Reporting Standards) as adopted by the European Union. This is a result of the way

that the organization works internationally and a consistence with the standards of IFRS will help

it to make its financial statements less demanding to contrast and the organization's statements

crosswise over nations, with the contenders over the business area and past, alongside enhancing

the nature of exposures in the financial statements (Li, 2010).

ReferencesCapkun, V. (2008). Earnings management and value relevance during the mandatory transition

from local GAAPs to IFRS in Europe. Available at SSRN 1125716.

Daske, H. (. (2006). Economic Benefits of Adopting IFRS or US‐GAAP–Have the Expected Cost of Equity Capital Really Decreased? Journal of Business Finance & Accounting, 329-373.

Ernstberger, J. (2008). Analyzing the German accounting triad—“Accounting Premium” for IAS/IFRS and US GAAP vis-à-vis German GAAP. The International Journal of Accounting, 339-386.

Hamberg, M. (2011). The adoption of IFRS 3: The effects of managerial discretion and stock market reactions. European Accounting Review, 263-288.

Li, S. (2010). Does mandatory adoption of International Financial Reporting Standards in the European Union reduce the cost of equity capital? The Accounting Review, 607-636.

Yip, R. W., & Young, D. (2012). Does mandatory IFRS adoption improve information comparability?. . The Accounting Review, 1767-1789.