The difference between IFRS vs GAAP (generally accepted accounting principles) are mentioned here. By this article you can learn the difference between IFRS (International Financial Reporting Standards) vs GAAP (Generally Accepted Accounting Principles), when was they implemented and the introduction of both IFRS and GAAP.
Introduction about IFRS vs GAAP
The International Financial Reporting Standards (IFRS) – the accounting standard used in more than 110 countries – has some key differences from the United States’ Generally Accepted Accounting Principles (GAAP). At the conceptual level, IFRS is considered more of a principles-based accounting standard in contrast to GAAP, which is considered more rules-based. By being more principles-based, IFRS, arguably, represents and captures the economics of a transaction better than GAAP. Some of differences between the two accounting frameworks are highlighted below.
Also Check : What is the difference between IFRS vs IAS ?
Whats is IFRS ?
International Financial Reporting Standards (IFRS) is a set of accounting standards developed by an independent, not-for-profit organization called the International Accounting Standards Board (IASB).
What is GAAP ?
GAAP full form is Generally Accepted Accounting Principles
Generally accepted accounting principles (GAAP) are a common set of accounting principles, standards and procedures that companies must follow when they compile their financial statements. GAAP is a combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information. GAAP improves the clarity of the communication of financial information.
What is the difference between IAS and GAAP?
Differences Between IFRS and U.S. GAAP
While this is not a comprehensive list of differences that exist, these examples provide a flavor of impacts on the financial statements and therefore on the conduct of businesses.
- Consolidation — IFRS favors a control model whereas U.S. GAAP prefers a risks-and-rewards model. Some entities consolidated in accordance with FIN 46(R) may have to be shown separately under IFRS.
- Statement of Income — Under IFRS, extraordinary items are not segregated in the income statement, while, under US GAAP, they are shown below the net income.
- Inventory — Under IFRS, LIFO (a historical method of recording the value of inventory, a firm records the last units purchased as the first units sold) cannot be used while under U.S. GAAP, companies have the choice between LIFO and FIFO (is a common method for recording the value of inventory).
- Earning-per-Share — Under IFRS, the earning-per-share calculation does not average the individual interim period calculations, whereas under U.S. GAAP the computation averages the individual interim period incremental shares.
- Development costs — These costs can be capitalized under IFRS if certain criteria are met, while it is considered as “expenses” under U.S. GAAP.
Key Differences Between GAAP and IFRS
|BASIS FOR COMPARISON||GAAP||IFRS|
|Acronym||Generally Accepted Accounting Principles||International Financial Reporting Standard|
|Meaning||A set of accounting guidelines and procedures, used by the companies to prepare their financial statements is known as GAAP.||IFRS is the universal business language followed by the companies while reporting financial statements.|
|Developed by||Financial Accounting Standard Board (FASB).||International Accounting Standard Board (IASB).|
|Inventory valuation||FIFO, LIFO and Weighted Average Method.||FIFO and Weighted Average Method.|
|Extraordinary items||Shown below.||Not segregated in the income statement.|
|Development cost||Treated as an expense||Capitalized, only if certain conditions are satisfied.|
|Reversal of Inventory||Prohibited||Permissible, if specified conditions are met.|
IFRS vs GAAP – Keypoints
The important difference between GAAP and IFRS are explained as under:
- GAAP stands for Generally Accepted Accounting Principles. IFRS is an abbreviation for International Financial Reporting Standard.
- GAAP is a set of accounting guidelines and procedures, used by the companies to prepare their financial statements. IFRS is the universal business language followed by the companies while reporting financial statements.
- Financial Accounting Standard Board issues GAAP (FASB) whereas International Accounting Standard Board (IASB) issued IFRS.
- Use of Last in First out (LIFO) is not permissible as per IFRS which is not in the case of GAAP.
- Extraordinary items are shown below the statement of income in case of GAAP. Conversely, in IFRS, such items are not segregated in the statement of income.
- Development Cost is treated as an expense in GAAP, while in IFRS, the cost is capitalised provided the specified conditions are met.
- Inventory reversal is strictly prohibited under GAAP, but IFRS allows inventory reversal subject to specified conditions are fulfilled.
- IFRS is based on principles, whereas GAAP is based on rules.
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