2. Generally Accepted Accounting Principles (GAAP) refer to a
common set of accounting rules, standards, and procedures
issued by the Financial Accounting Standards Board (FASB).
Public companies in the U.S. must follow GAAP when their
accountants compile their financial statements.
International Financial Reporting Standards (IFRS) are a set of
accounting principles for the financial statements of public
companies that are intended to make them consistent,
transparent, and easily comparable around the world.
Applied in almost 120 countries except USA.
IFRS (Principles-Based Accounting)
vs. US GAAP (Rules-Based Accounting)
4. Key Differences between IFRS vs. US GAAP
1. Treatment of inventory
IFRS – LIFO (Last In First Out) is not allowed
GAAP – LIFO or FIFO (First In First Out) is allowed.
2. Intangibles
IFRS – costs in the research phase are expensed as incurred
US GAAP – generally requires immediate expensing of both research and
development expenditures
3. Rules vs. Principles
GAAP – Rules and Procedures
IFRS – Principles
4. Recognition of revenue
GAAP – revenue is not recognized until the exchange of a good or service
has been completed
IFRS – revenue is recognized when the value is delivered.
5. Classification of liabilities
GAAP – liabilities are classified into either current or non-current liabilities.
IFRS – no plain distinction between liabilities in IFRS
5. US Public Company use GAAP
SEC / Government
International/Global companies use IFRS
Non-profit organizations
US has started to accept IFRS reports
On-going efforts to bridge the gap
Who Uses GAAP vs. IFRS
6. History
Stock Market Crash of 1929 and the subsequent Great
Depression
Securities Exchange Act of 1934
Harmonize accounting across the European Union
The IAS were issued between 1973 and 2001 by
the Board of the International Accounting
Standards Committee (IASC).
7. Present and Future
US GAAP
Still required for US companies
IFRS
IFRS currently has complete profiles for 166
jurisdictions including those in the European Union
9. Bragg, S. M. GAAP Implementation Guide; John Wiley & Sons: Hoboken, N.J.,
2004
Bragg, S. M. The Ultimate Accountants' Reference : Including Gaap, Irs and Sec
Regulations, Leases, and More, 3rd ed.; Wiley: Hoboken, N.J., 2010.
Media, B. P. P. L. IFRS Explained : A Guide to International Financial Reporting
Standards; Explained; BPP Learning Media: London, 2012.
Garvin, M. GAAP vs. IFRS: What's the difference?: HBS Online. Business Insights
Blog. (2019August 30). Retrieved May 23, 2022, from https://online.hbs.edu/blog/p
ost/gaap-vs-ifrs .
References