IFRS and GAAP

GAAP stands for ‘Generally Accepted Accounting Principles’, it was officially enforced by the US Financial Accounting Standard Board or the FASB as the accounting standard in the US. On the other hand, the IFRS which stands for ‘International Financial Reporting Standards’ is used across the world with at least 110 countries using it as their accounting standard. It was enforced by the IASB (International Accounting Standards Board). Generally, the GAAP is a rule centered system while the IFRS is more principle-centered.

Recently many companies have started to consider shifting to IFRS from GAAP for various reasons.

The Importance of Financial Bilingualism

Some IFRS requirements affect US businesses because of business conducted across borders. Due to this, the importance of financial bilingualism for United States accountants has increased. This article will describe and highlight the qualities and differences of GAAP and IFRS.

	GAAP	IFRS
Prominent Features	precision, comparability, reliability, and simplicity. Comparability comes in 2nd to precision and reliability, and after that simplicity.	precision, comparability, reliability, and simplicity. However, all are considered equal
Performance Elements	comprehensive income, revenue, expenses, assets and liabilities, losses and gains	Expenses and revenues, assets and liabilities
Inventory	FIFO and LIFO may be applied.	Only FIFO may be applied.
Inventory reveals	Are not allowed	Allowed under some conditions
Consolidation	Operates on a risk & reward-based model.	Follows a control based model
Income Statements	extraordinary items are recorded separately.	Extraordinary income is not recorded separately
Required Documents	income and footnotes statement, changes in equity, income statement, balance sheet and cash flow statement	Changes in footnotes and equity, statement of cashflow, balance sheet and income statement
Earnings Per Share	The overall average amount includes the calculation of interim period incremental costs	The average interim period calculation is not taken into account
Framework Purpose	Does not require consideration of the guidelines when no other standard is present	The company’s management has to follow the same guidelines unless other standards are available
Cost of Development	Every expense is considered a cost	Costs may be capitalized where they meet the criteria
Functional Period	Financial data of the past three years is required	A years’ worth of financial data is required
Debt and Financial Liability	Instruments of equity are treated the same as their face value	Any equity instrument is considered debt
Assumptions	The ‘’going concern’’ assumption isn’t developed enough for GAAP	‘’Going concern’’ and ‘’accrual’’ are both given importance

The Global Perspective: Which is better?

Most economic and accounting experts value a high end, consistent and globally used accounting standard. Based on this, IFRS is in for the win as it is best fitting that role. Despite this, the US and other GAAP users cannot make a sudden shift to the IFRS. Considering all of the factors listed above, both the IASB and FASB should keep trying to improve and heighten their standard while keeping interoperability in mind so the problems regarding the differences between the American GAAP and the IFRS do not keep getting deeper.