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The International Financial Reporting Standards (IFRS) - the accounting standard used in more than110 countries - has some key differences from the U.S. Generally Accepted Accounting Principles (GAAP). At the conceptually level, IFRS is considered more of a "principles based" accounting standard in contrast to U.S. GAAP which is considered more "rules based." By being more "principles based", IFRS, arguably, represents and captures the economics of a transaction better than U.S. GAAP. Some of differences between the two accounting frameworks are highlighted below:
Intangibles:
The treatment of acquired intangible assets helps illustrate why IFRS is considered more "principles based." Acquired intangible assets under U.S. GAAP are recognized at fair value, while under IFRS, it is only recognized if the asset will have a future economic benefit and has measured reliability. Intangible assets are things like R&D and advertising costs.
Inventory Costs:
Under IFRS, the last-in, first-out (LIFO) method for accounting for inventory costs is not allowed. Under U.S. GAAP, either LIFO or first-in, first-out (FIFO) inventory estimates can be used. The move to a single method of inventory costing could lead to enhanced comparability between countries, and remove the need for analysts to adjust LIFO inventories in their comparison analysis.
Write Downs:
Under IFRS, if inventory is written down, the write down can be reversed in future periods if specific criteria are met. Under U.S. GAAP, once inventory has been written down, any reversal is prohibited. (To learn more, check out International Reporting Standards Gain Global Recognition)
Because of these ongoing convergence projects, the extent of the specific differences between IFRS and U.S. GAAP is shrinking. Yet significant differences do remain. For example:
IFRS does not permit Last In First Out (LIFO) as an inventory costing method.
IFRS uses a single-step method for impairment write-downs rather than the two-step method used in U.S. GAAP, making write-downs more likely.
IFRS has a different probability threshold and measurement objective for contingencies.
IFRS does not permit curing debt covenant violations after year-end.
IFRS guidance regarding revenue recognition is less extensive than GAAP and contains relatively little industry-specific instruction.
Perhaps the greatest difference between IFRS and U.S. GAAP is that IFRS provides much less overall detail. As an example, IFRS fit into one book, about two inches thick while the three FASB paperbacks of pronouncements plus the paperback version of the FASB Emerging Issues Task Force consensuses measure about nine thick, and that doesn’t include all of the authoritative literature.
GAAP is a framework based on legal authority while IFRS is based on a principles-based approach. GAAP is more detailed and prescriptive while IFRS is more high-level and flexible. GAAP requires more disclosures while IFRS requires fewer disclosures.
A major difference between GAAP and IFRS is that GAAP is rule-based, whereas IFRS is principle-based. With a principle-based framework, there is the potential for different interpretations of similar transactions, which could lead to extensive disclosures in the financial statements
GAAP (Generally Accepted Accounting Principles) as the name denotes, are the accounting principles that are the industry best practices developed over the period. hence it vary industry to industry and are not standerdized. which makes it difficult to compare the financial statements of companies around the world without making the necessary adjustments.
on the other hands, IFRS are the standards. that derive based on the substance and principles.
principle based' and bring uniformity worldwide while GAAP is 'rule based' and is a country based guidelines
IFRS is 'principle based' and bring uniformity worldwide while GAAP is 'rule based' and is a country based guidelines to fit the other values
Generally the International Financial Reporting Standards (IFRS), are used internationally and have international acceptabiity as a yardstick to provide unifromity in the preparation of financial statements.
IFRS are considered to be more of "principles based" accounting standard in contrast to GAAP which is considered more "rules 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:
Intangibles:
While GAAP recognizes intangibles at fair value, under IFRS, it is only recognized if the asset will have a future economic benefit and has measured reliability. Intangible assets are things like R&D and advertising costs.
Inventory Costs:
Whereas under GAAP, inventory valuation can be either LIFO ( Last in First Out) or FIFO ( First in First Out) but under IFRS, the last-in, first-out (LIFO) method for accounting for inventory costs is not allowed.
Write Downs:
Under IFRS, if inventory is written down, the write down can be reversed in future periods if specific criteria are met. Under GAAP, once inventory has been written down, any reversal is prohibited.
IFRS is more principles based Accounting Standards.
Either GAAP focus on Generally Accepted rules based Accounting standards.
The two main distinctions are: Enforcement. GAAP is rule-based, meaning publicly traded US companies are lawfully required to follow its directives. On the other hand, IFRS is standard-based, meaning no one is required to follow its guideline
GAAP (General Accepted Accounting principles) are used in the USA. It’s a financial reporting framework like IFRS (International Financial Reporting Standards) but the main difference is that GAAPs are based on rule based approach and IFRS are based on principle approach.
If you are looking for a particular accounting treatment difference you better refer to a text book, you can find one online from Pwc website.
USA is also planning to follow IFRS framework (don’t know exact date).
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