GAAP vs IFRS, What we need to know?

There are two most popular standards of financial reporting. International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP). USA is the only country that follows this method of Accounting. IFRS and IAS are however the most widely used system in the world, with more than 110 countries using this method of accounting for preparing of financial statements.

GAAP is more of rules based system of accounting while IFRS/IAS follow more of a principles based of accounting. The U.S. Securities and Exchange Commission is looking to switch to IFRS however since there are a lot of differences so it makes it difficult to make all amendments at once so changes are first agreed upon and then are being changed. Some of the accounting treatments recommended by IFRS has also been implemented in US GAAP such as IFRS 15.

Both IFRS and GAAP seek to provide information pertinent to a wide range of stakeholders. However, GAAP provides separate objectives for business organizations and non-business organizations, while the IFRS only has a single objective for all types of organizations.

The principles of GAAP are issued by Financial Accounting Standard Board (FASB) whereas IFRS are issued by the International Accounting Standard Board (IASB). Similarly GAAP still allows the use of Last In, First Out (LIFO) method for inventory valuation, in contrast in IFRS, the LIFO method for inventory is excluded.

Similarly in case of intangible assets such as goodwill, IFRS takes into consideration whether an asset will have a future economic benefit as a way of assessing the value. On the other hand Intangible assets in case of US GAAP are recognized at the fair market value of the asset and nothing more than that.

In Noncurrent assets, companies using GAAP accounting must value these assets using the cost model. However in case of IFRS, the revaluation model can also be followed.

The Development costs of an asset can be capitalized in IFRS/IAS, as long as certain conditions are fulfilled. Whereas with GAAP, development costs are rather expensed out.

At last, the subjective attributes to how the bookkeeping techniques work. GAAP works inside an order of qualities, for example, importance, dependability, equivalence and understandability, to settle on educated choices dependent on client explicit conditions. IFRS additionally works with similar qualities, yet with the exemption that choices can't be made on the particular conditions of an individual.


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