This study analyzes and compares the rule- and principle-based accounting systems used by Apple and Samsung, two of the world’s top consumer electronics manufacturers. Even though the two international corporations operate in the same industry, they follow distinct accounting procedures. Apple utilizes the Generally Accepted Accounting Principles (GAAP) model, whereas Samsung adopts the International Financial Reporting Standards (IFRS) framework (Apple Inc., 2021). The information presented in this study demonstrates that the two systems have the same goal: to maximize shareholder value while fostering accountability in preparing financial statements. In contrast to IFRS, the GAAP approach has a greater level of required conformity. Compared to Samsung’s principle-based structure, the rule-based model assumes a greater level of compliance for Apple’s financial reporting.
In order for a firm to operate successfully, financial performance is highly critical. Consequently, a well-developed financial report might assist managers or investors in comprehending their goals and tracking their progress toward achieving them. Researchers have recently stressed the necessity to understand the methodology used to create solid financial reports in order to make wise investment decisions and compare corporate performance based on the significance of financial reporting to business success and investor relations.
The argument between adopting the principle-based and rule-based accounting models lies at the heart of these arguments. The rule-based framework specifies a series of steps businesses must take while creating financial reports. Contrarily, the principle-based framework stipulates a list of controls or actions with which companies must comply to meet their accounting goals (Camfferman & Detzen 2018). When comparing company performance on a regular basis, adopting the concept and rule-based standards of financial reporting have been a point of disagreement in practice (Persson, Radcliffe & Stein 2018; Camfferman & Detzen 2018). As a result, the focus of recent talks has been on finding the optimum financial reporting model to apply globally in assessing business performance for massive multinationals operating in several jurisdictions.
By contrasting and analyzing how the rule-based and principle-based models of accounting are used in the consumer electronics sector, this research contributes to the argument. This is one of the most vibrant tenets of the technology sector, which has fueled expansion in many e-commerce industries. The creation of new devices by two top corporations, Samsung and Apple, has been at the center of the revolution. South Korean firm Samsung is situated in Seoul and produces consumer electronics (Apple Inc., 2021). Its mission is “to improve the world by bringing richer digital experiences to life through cutting-edge goods and technology” (Samsung Inc. 2019, p. 1). Apple, in contrast, is a California-based American business. To “deliver the best user experience to consumers through new hardware, software, and services,” according to their vision statement (MSA 2019, p. 1). Due to their shared market niches and operations in the same sector, Samsung and Apple are established rivals. Although Samsung has a larger market share (24%) than Apple, which has a smaller market share (27%) (Mourdoukoutas 2018), Apple’s market value is more crucial.
Due to Apple’s reliance on the GAAP model and Samsung’s usage of the IFRS system, the two companies have different accounting methods. The latter is equivalent to the principle-based approach to accounting, whereas GAAP is associated with a framework that is based on rules. Key portions of this research will compare and contrast the two accounting systems and demonstrate how the two businesses mentioned above have used them to raise shareholder value and strengthen investor relations. However, it is crucial to comprehend the similarities and differences between the two financial reporting systems before getting into the specifics of this research.
The two primary forms of accounting standards implemented by various nations worldwide are GAAP and IFSR, as previously mentioned. While GAAP is associated with the principle-based framework, the latter is a synonym for the principle-based accounting system. The majority of US-based businesses, including Apple, adopt the GAAP methodology, whereas Samsung uses the IFSR methodology (Rampulla 2018; Samsung Electronics Co., Ltd. and its subsidiaries, 2021). The two systems’ goals are comparable since they both work to encourage responsibility in the creation of financial statements. This similarity may be seen in how they both handle inventories.
For instance, both approaches permit the use of the first-in-first-out (FIFO) inventory management strategy to increase shareholder value (Camfferman & Detzen 2018). Similarly, they both permit the use of the weighted average cost approach to reduce operating expenses and inventory items that are not needed. Both accounting systems enhance shareholder value by increasing the quality and openness of the information in financial reporting.
The incentive theory, which postulates people’s inclination to embrace rewarding acts and reject those that have adverse effects, might account for this commonality. Therefore, businesses utilize rule-based and principle-based accounting systems to promote shareholder value as the ultimate reward, regardless of the accounting style they use. The GAAP framework mandates rigorous adherence to the same standards, but the IFRS model requests less data about a firm’s financial performance (Camfferman & Detzen 2018). The degree of latitude provided to businesses to accomplish their accounting goals is the cause of this variation.
Companies are allowed to pursue their accounting goals under the principle-based model, but the GAAP framework is rigid. The rule-based approach, for instance, mandates that businesses produce a statement of comprehensive income. However, as its supporters do not view this index as a significant indicator of financial success, this need is not necessarily valid for the IFRS. In contrast, Samsung adopts the IFSR standard to encourage consistency and transparency while creating financial statements. Its processes were developed to comprehend a company’s financial performance and empower investors to make wise monetary judgments in light of a thorough data assessmentThe fact that Samsung’s IFRS approach is principle-based rather than rule-based makes it different from Apple’s GAAP methodology.
When Apple and Samsung use separate accounting software, it brings up differences in financial reporting requirements that are predicated on how both businesses have consolidated their financial accounts. For instance, Apple’s GAAP promotes a risk-reward system, whereas Samsung’s IFRS accounting structure is focused on a control approach (Camfferman & Detzen 2018). Because of this, several businesses that were emphasized in Apple’s income statement were not included in Samsung’s statement of operations. For instance, Samsung’s income statement does not separate special items, whereas Apple’s income statement does, and this item is noted below the net income (Market Watch 2019a; Market Watch 2019b). According to the conclusions of this study, Apple and Samsung use various accounting systems, which provide them with differing degrees of regulatory compliance and financial reporting independence. These two systems differ in mechanism, method of fixation and recording, as well as regulatory features.
In this context, certain recommendations can be derived, because based on the above information, it can be understood that any regulatory measures will greatly affect the immediate profits of the company. The same will affect the cost of raw materials, organizational and marketing costs, as well as the salaries of employees. In this case, we can recommend a local adaptive strategy for the implementation of methods from both systems. As well as an analysis of market conditions in the search for the most appropriate accounting and regulation practices. Apple has fewer options to modify its financial reporting requirements thanks to the GAAP framework. However, Samsung has greater latitude to do this as long as it follows the IFRS framework’s guiding principles. Nonetheless, the evidence provided in this report shows that the direction and rule-based systems are similar in their objectives because they strive to promote accountability in the development of financial statements.
References
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Mourdoukoutas, P. (2018). Samsung beats Apple in the global smartphone market as Chinese brands close in. Forbes. Web.
Msa. (2020). Apple Mission Statement 2020: Apple Mission & Vision Analysis. MissionStatement.com. Web.
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Rampulla, R. (2018). Common U.S. GAAP issues facing CPAS. John Wiley & Sons, London.
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