Bridging the GAAPs Harvard Case Solution & Analysis

Bridging the GAAPs  Case Study Solution


David Soh, the owner of HOLT Company had greeted Ron Graziano, the global accounting specialist for credit Suisse, to discuss some of the new ideas related to the service department of HOLT regarding the recent adoption of IFRS by the company. The IFRS had so far been adopted by more than 100 countries and the future expectations are that there might be a single accounting standard that would make the comparisons between companies more easy.

The primary service deliveredby HOLT was to provide its clients with a common performance metric that took cash flow into account to make comparisons between the corporate performances of the companies. In order to calculate the Cash Flow Return on Investment Measure, the company would account for the differences in the accounting treatment of major items such as income and expenses and then made adjustments to the local information to reflect the global standards.

This was becoming quite a concern for HOLT as Graziano had noted that a number of clients of the company were asking that whether the complete adoption of IFRS by HOLT would affect the adjustment process of the company and to what extent. The clients were curious that the changes in the IFRS would impact on the performance metric that had been computed by HOLT. David Soh was looking forward to look at these issues and discuss them with Graziano. On the other hand, Graziano was also looking forward to help Soh based on his own experience from the adoption of the IFRS that had been adopted by the European Union back in 2005.

Issue Identification

The inconsistencies in the accounting standards has created major obstacles for the global equity investor and it is making their decision making more complicated. Adoption of a single accounting standard has received much attention and excitement, however, the adoption of a globally recognized accounting standard does not mean that this is going to resolve all the accounting differences and make financial reporting standardized. This is the major issue within this case and it relates to the changes in the recognition of R&D expenses as either intangible assets of expenses.

Prior to the adoption of IFRS, HOLT has been capitalizing all the research and development expenditures however, IFRS requires only certain criteria as specified by IFRS 38 is met. Moreover, according to the example provided by Graziano about Fiat and Sanofi-Aventis, the incurring of the development and research expenditures and recognition of the development expenditure as an intangible asset takes place at different points of time in different industries. The two companies provided explanations that were not logical therefore, the adoption of IFRS was creating more inconsistencies as compared to the increasing global comparability, as stated by Graziano.

External Analysis

The external analysis has been performed by discussing the impact of a number of change drivers and how it could impact the adoption of IFRS by companies.


The disclosure of the accounting information is one of the most important products of the political strategy and also the application of the empirical and scientific logic. The political freedom in any of the country is predominant for development and acceptance of accounting. A political system where there is a favored based democracy political environment then this means that there is a high degree of political freedom and thus it enhances the development of the accounting system in a positive manner (Archer, 1995). HOLT is located within the Asian region and the governments of major Asian countries like China, Japan and Korea allow the companies and individuals with enough political freedom so that they can influence the government policies and positively affect the development of the accounting.


The economic condition and the education status of a country tend to have a great impact on the technological, scientific and the economic environments of the countries. The level of the education affects the current accounting practices of the country (Ashbaugh, 2001). The appreciation of the accounting framework is not same across the non-experienced and the experienced members. IFRS has been made on the basis of the practical experience and the professional competence of the IASB members and as the education level in Asia is growing, the development and acceptance of IFRS is becoming more important issue.

Bridging the GAAPs Harvard Case Solution & Analysis



Demographic/ Social

The concept of societal interactions or the culture of the society has attracted a great attention in many countries. Based on research, any country that has large power distance, where uniformity is high, culture is oriented against uncertainty and where the individualism is average, will show a conservative system of accounting based on their social status (Ashbaugh, 2001). This is the type of the social environment in Asia. Moreover, the growth of the population and wealthy professions or individual investors makes this more important and thus it can significantly impact and influence the judgment of the professionals regarding the adoption of IFRS........................

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