GAAP VS IFRS - The Difference!

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 a rules-based system of accounting while IFRS/IAS follow more of a principle-based system 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 organisations and non-business organisations, while the IFRS only has a single objective for all types of organisations.

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 recognised at the fair market value of the asset and nothing more than that.

In Non-current 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 capitalised in IFRS/IAS, as long as certain conditions are fulfilled. Whereas with GAAP, development costs are rather expense 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 understand-ability, 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.