Fiat Essay
GAAP / IFRS Fiat Group's first-time adoption of IFRS Differences Between Key Accounting Methods Under Italian GAAP And IFRS What characterizes the differences between the two sets of methods? - Substance over form Example: Recognition of revenue - Less flexibility Example: Recognition of R&D cost - More transparent Main factors that affect management’s reporting incentives and strategy in fiscal year 2005 - Research & Development: Because Fiat main operations are based on the manufacturing of cars, they heavily rely on research and development to come up with new models across all brands, with creativity, style, innovation and new technology. - Sales: Sales are very important, and it is necessary for Fiat to implement accounting policies that show sales in the most favorable way. Key accounting policies which are affected by the adoption of IFRS Key accounting policies which are affected by the adoption of IFRS Revenue recognition – sales with a buy-back commitment: IFRS / Italian GAAP Factors might reduce management’s incentive to fully comply with the IFRS Fiat’s key accounting policies Development (R&D) costs Under Italian GAAP, research and development costs may be capitalized or alternatively charged to operations when incurred. So Fiat had two options to choose from, which shows that the Italian GAAP had more flexibility when it comes to development costs. However under the new IFRS, Fiat was required to capitalize research and development costs and also amortize the amount that had been capitalized. Because of that intangible assets who an increase of 2,499 million euros at Dec 31st 2004 Under Italian GAAP, Fiat group recognized revenues from sales of products at the time title passed to the customer, which was generally at the time of shipment. For contracts for vehicle sales with a buy-back commitment, a specific reserve for future risks and charges was set aside. Under IFRS, new vehicle sales with a buy-back commitment do not meet criteria for