GAAP and IFRS standards are accounting standards and principles according to which company’s deals with different accounts and develop financial statements. GAAP standards for Generally Accepted Accounting Principal while IFRS represents the modern International Financial reporting standards. The basic difference between GAAP and IFRS is related to formatting, classification, and recognition.

 For instance, GAAP standards consider earned revenue (generated from the sales of services or products on cash rather than credit) as the only source of revenue. While IFRS also includes revenue generated from other gains and other income sources (related to the asset, finance cost income, and rendering of services). The income statement is developed for Saudi Telecom Company. The income statement is related to the three-year duration of 2008-2010.   

Source: (Albilad Capital, 2010)

Analysis

Considering the differences between GAAP and IFRS standards, several new accounts or items are added in this income statement that represents the IFRS format. In this income statement, revenue or profit generated from other activities such as indirect sales activities are also included. Operating expense is calculated by subtracting the total operating expense (including administrative, distribution, research and development, and other miscellaneous expenses) from the sum of gross profit and other income. 

 Therefore, income statements are representing a clear difference in the “Operating profit” of both statements (following GAAP standard and IFRS standard) even gross profit is the same. Furthermore, EBIT is also different in both statements that cause to decrease or increase in the tax expenses. In the converted income statement operating profits are 10979560 in 2010, 11496806 in 2009, and 13497019 in 2008 while in GAAP based income statement operating income after subtracting total operating expense from gross profit was recorded as 10978311 in 2010, and 12813587 in 2009 (see the presented below income statement in the appendix). 

Income statement developed on the basis of GAAP standard also provides information about rendered sales, and returned goods or products sales. While IFRS directly represent the earned revenue from different kinds of services and products sales. Somehow, IRFS standards also do not represent the supplemental equity or change in equity therefore in this income statement information regarding shareholders equity is not presented. Saudi Telecom Company will represent the information about changes in shareholders’ equity in a separate statement.      

Thus in the light of analysis, we can conclude that GAAP and IFRS standards provide different formats and principals to represent the financial performance. The difference in statement formatting also causes to bring changes in the earning and net profit calculations, therefore, statements developed on these standards highlight and hide some details from the stakeholder and develop different impact. Somehow, Saudi Telecom Company as Public Offering Company follow up the standards that are accepted by their stock exchange and rules of its country Saudi Arabia.       

Advantages of IFRS Standards

After following international standards Saudi Arabia can several benefits such as they can easily operate in the International market. Having the same standards with almost 130 countries (countries that are also following IFRS or same international standards) will help them promote their business in the international market and get investment from shareholders all over the world. Saudi Arabia can promote foreign direct investment and globalization in the country by adopting these international standards (Deloitte.com, 2019). There are several advantages associated with the use of IFRS standards that encourage the decision to the covert Income statement in IFRS standard. For instance, IFRS is highly focused on investors. Through converting in IFRS company can provide timely, accurate, and comprehensive information that relates to the investor's requirement. Basically, IFRS promote the efficiency of contracting through an increase in transparency and chances in loss recognition timeline. In European countries IFRS standards are more acceptable as compared to GAAP therefore through following IFRS Company can easily win the European market.        

Appendix 

References

Albilad Capital. (2010). Saudi Telecom Company. Albilad Capital.

Deloitte.com. (2019). Adoption of IFRS in Saudi Arabia. Retrieved from www2.deloitte.com: https://www2.deloitte.com/ye/en/pages/about-deloitte/articles/on-malta/adoption-of-IFRS-in-sa.html

Appendix 2