IFRS ADOPTION IN A LEANING CORPORATION: A STUDY OF THE EFFECTS OF IFRS ON GENERAL ELECTRIC TRANSPORTATION COMPANY
Open Access
- Author:
- Klebe, Alexandra Rae
- Area of Honors:
- Accounting
- Degree:
- Bachelor of Science
- Document Type:
- Thesis
- Thesis Supervisors:
- Karl A Muller III, Thesis Supervisor
Karl A Muller III, Thesis Supervisor
Orie Edwin Barron, Thesis Honors Advisor - Keywords:
- IFRS Adoption
Lean Accounting
General Electric Transportation Company - Abstract:
- The United States manufacturing industry is currently facing several potential changes to its business environment. A prime example of a corporation in this industry that will be encountering multiple developments over the next few years is General Electric Company. In particular, one of its subsidiaries, General Electric Transportation (GETS), is beginning to experience the effects of both voluntary and mandatory changes. GETS has invested in the “lean” manufacturing initiative, which is a production practice that centers on continuous improvement of the production cycle through eliminating waste and increasing efficiency. While the company has made substantial improvements to the shop floor, it must work hard to avoid the fate of the majority of corporations that create an unsustainable lean system. In order to make the investment last in the long term, GETS must carry the lean philosophy beyond production and into all functions of its business. The most critical area that needs to be “leaned” is its accounting department. GETS’s business is driven by finances; in order to fully support a lean production system, the company must develop a lean accounting system. At the same time, financial reporting changes are underway that may subsequently affect GETS’s lean situation. The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) have been working together to create a converged set of global accounting rules. In 2007, the Securities and Exchange Commission (SEC) intensified the commitment by establishing a roadmap for possible adoption of IFRS by US public companies. The SEC plans to announce a decision in 2011 on whether to require adoption by 2015 or 2016. If IFRS becomes the reporting standard in the United States, GETS will experience significant changes to its financial reporting practices despite current preparations. This thesis applies the effects of IFRS adoption to a lean accounting system implementation in order to prove that GETS will be benefited by IFRS in creating sustainable lean. The main method of research in this paper is an empirical study of US GAAP and IFRS to determine whether IFRS and its adoption holds benefits for GETS’s lean accounting system in the long term. US GAAP and IFRS are first examined from a fundamental perspective. A comparison of their principles reveals that IFRS compliments GETS’s lean accounting system with its emphasis on understandability and flexibility. US GAAP and IFRS will be also studied from a regulatory perspective. In particular, areas such as financial statement presentation and expense classification hold benefits for communicating GETS’s lean transition to shareholders. The comparison of US GAAP and IFRS is supplemented by a survey of GETS employees and interviews with GETS and academic experts. The views of the individuals experiencing the accounting changes on a first-hand basis contribute to the conclusion that IFRS adoption holds benefits over US GAAP for GETS in the implementation of a lean accounting system.