...GAAP vs IFRS Generally Accepted Accounting Principles verses International Financial Reporting Standards Laura Lance Financial Accounting, ACC211 Instructor Suzanne Lozano 12 November 2011 GAAP vs IFRS 1 Generally Accepted Accounting Principles verses International Financial Reporting Standards. The two accounting reporting systems used today are the International Financial Reporting Standards and the U.S. Generally Accepted Accounting Principles (GAAP). These two totally different accounting standards have a lot of differences and similarities. The IFRS leaves the decision making for the accountants, while the GAAP is very detailed in the measures in which it reports accounting. Many companies are operating under a global sort of accounting. Each different Country has different standards in accounting principles. In this document I will go over a few differences and similarities between the IFRS and GAAP accounting principles. Disclosure of Contingencies One of the most significant differences between GAAP and IFRS is the disclosure of potential liabilities. U.S. GAAP would like to increase the standard for disclosure of loss contingencies, such as lawsuits that are pending. The IFRS position on this is that...
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...US GAAP vs. IFRS The basics March 2010 Table of contents 2 5 7 8 11 13 14 16 18 20 26 28 31 33 35 38 40 42 43 44 46 47 Introduction Financial statement presentation Interim financial reporting Consolidations, joint venture accounting and equity method investees Business combinations Inventory Long-lived assets Intangible assets Impairment of long-lived assets, goodwill and intangible assets Financial instruments Foreign currency matters Leases Income taxes Provisions and contingencies Revenue recognition Share-based payments Employee benefits other than share-based payments Earnings per share Segment reporting Subsequent events Related parties Appendix — The evolution of IFRS Introduction It is not surprising that many people who follow the development of worldwide accounting standards today might be confused. Convergence is a high priority on the agendas of both the US Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) — and “convergence” is a term that suggests an elimination or coming together of differences. Yet much is still made of the many differences that exist between US GAAP as promulgated by the FASB and International Financial Reporting Standards (IFRS) as promulgated by the IASB, suggesting that the two GAAPs continue to speak languages that are worlds apart. This apparent contradiction has prompted many to ask just how different are the two sets of standards? And where differences exist, why do they exist...
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...IFRS vs. GAAP Accounting 290 IFRS vs GAAP The world has never been smaller than it is today. Technology has created ways to reach out to the far corners of the world that have never been possible in the past. This has made the transfer of information the easiest and fastest it has ever been. This revelation of information didn’t just make it easier for individuals to connect around the world, but business as well. Internationalization of business has never been stronger throughout the world. Just like different cultures from around the world differ, so do the ways business operate and report their finances. There are two main ways business around the world report their accounting information. The Generally Accepted Accounting Principles (GAAP) is primarily used in the United States and the International Financial Reporting Standards (IFRS) is primarily used in European markets as its accounting system. With the United States looking to join its European counterparts in 2015 to switch to a IFRS system, it’s important for business to understand the similarities and differences between the two accounting systems. In What Ways Does the Format of a Financial Statement Differ? One of the big changes will be the requirements of separating current, non-current assets, and liabilities under the IFRS. The GAAP only recommends that you separate assets, non-current assets, and liabilities but does not require a company to do so. The IFRS requirements...
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...GAAP vs. IFRS Jose Vargas Phoenix Accounting 211 Dr. Freeman GAAP vs. IFRS Different accounting standards for business transactions are a problem in comparing financial results of different entities from different countries. As a solution, by our country accepting one standard, an international standard it would allow them to be assessed in a more comparable manner across the board. The United State of America with just a handful of other countries have in the past have used accounting guidelines based off the Generally Accepted Accounting Principles (GAAP) formulated by the Financial Accounting Standards Board. In order to bring about a accounting standard that can address the different accounting standards, the International Accounting Standards Board (IABS) has developed accounting guidelines called the International Financial Reporting Standards (IFRS). By every Country adopting these guidelines, it is expected that financial statements will be more comparable to different entities in other countries. When transitioning from GAAP to IFRS, there have been several differences identified in accounting and reporting financial transactions and records. The following are just a hand full which addresses some differences between the two reporting standards. * Extraordinary items; are the events that don’t occur on a regular basis, for IFRS they are simply prohibited and for GAAP, as long as they are unusual and indifferent they are allowed (Logue). * Bank...
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...IFRS vs. GAAP Introduction The U.S. GAAP is accounting principles adopted by the U.S Securities and Exchange Commission (SEC). Over time SEC has been talking about moving these principles over to the IFRS, The International Financial Reporting Standard. “IFRS is an accounting standard that was developed by a not-for-profit group called the International Accounting Standard Board. (www.Ifrs.com)” This summary will give you a subject by subject look of some differences and similarities both the IFRS and the GAAP carry. IFRS 2-1: In what ways does the format of a statement of financial or position under IFRS often differs from a balance sheet presented under GAAP? Accounting follows the double entry standard where transactions are broken down into sections, revenue or expenses, assets or liabilities. Under IFRS, it does not dictate a particular order of accounts on the statement of financial. Usually, companies report their assets in reverse order of liquidity. For example, you would start with long term assets and work your way down to current liabilities. Under GAAP, it requires that all accounts be in order of their liquidity. Cash is usually reported first and non- current assets would be listed last. With these differences financial reporting results would be different for companies. IFRS 2-2: Do the IFRS and GAAP conceptual frameworks differ in terms of the objective of financial reporting? Explain. No, IASB and FASB conceptual frameworks are organized in similar...
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...GAAP vs. IFRS Principles Based vs. Rules Based 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. Although, the standards setting board in a principle-based system can clarify areas that are unclear. This could lead to fewer exceptions than a rules-based system. Another difference between IFRS and GAAP is the methodology used to assess an accounting treatment. Under GAAP, the research is more focused on the literature whereas under IFRS, the review of the facts pattern is more thorough. Some Examples of Differences Between IFRS and U.S. GAAP * Consolidation — IFRS favors a control model whereas 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. With GAAP, they are shown below the net income. * Inventory — Under IFRS, LIFO cannot be used, but GAAP, companies have the choice between LIFO and FIFO. * Earning-per-Share — Under IFRS, the earning-per-share calculation does not average the individual interim period calculations, whereas under GAAP the computation averages the individual interim period incremental shares. * Development costs —...
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...organization is reporting under the IFRS standard while their branch in the United States is using US-GAAP. While the differences do not outweigh the similarities, GAAP and IFRS standards have caused some concerns in financial reporting. These concerns have led to the evaluation of these two reporting standards and the discussion on whether to move IFRS worldwide. This paper will outline a few of the differences between GAAP and IFRS as well as review the discussion of standardized reporting using IFRS. Introduction Historically, accounting and reporting standards in the United States have been set by the AICPA (American Institute of Certified Public Accounts) as laid out by the regulations set by the Securities and Exchange Commission (SEC). In 1973, the Financial Accounting Standards Board (FASB) was developed by the AICPA as a council for establishing standards for reporting for all United States companies. Under FASB, GAAP was reorganized into approximately 90 accounting standards offering concise methods to follow for financial reporting. This not only allowed for ease of access when reading US financials statements, but also allowed for comparison of documentation for investments, credits, and other financial decisions. On the other hand, the International Financial Reporting Standards (IFRS) were developed by the International Accounting Standards Board (IASB) based in London. Currently, about 120 nations require the use of IFRS for financial reporting by public companies...
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...IFRS vs GAAP – differences in revenue recognition IFRS and GAAP in Canada are both principle-based frameworks with significant conceptual similarities, but where they differ drastically is in the application of those general principles. By looking at the detailed guidance of GAAP vs IFRS for processing various accounting transactions, one can start to embrace the magnitude of the disparity between the two sets of reporting standards. Revenue recognition principle illustrates the IFRS vs GAAP divergence. Under IFRS, the revenue from the sale of goods is recognized when the seller has transferred the significant risks and rewards of ownership to the buyer and no longer has control or managerial involvement over the goods. Canadian GAAP follows the same logic, but has more specific criteria underlying these principles such as: the existence of persuasive evidence of an arrangement, the occurrence of delivery or rendering of services, and whether the seller’s price to the buyer is fixed or determinable. By the same token, Canadian GAAP provides a detailed approach for revenue recognition for multiple-deliverable arrangements which is not specific to a scenario or industry; IFRS does not provide such detailed guidance, however, it does consider some specific scenarios. The Canadian GAAP vs IFRS distinction can be further seen in examining multi-deliverable arrangements. Canadian GAAP provides a detailed approach for revenue recognition for multiple-deliverable arrangements which...
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...Global GAAP: IFRS vs. US GAAP Acct 522 Current Topics in Financial Reporting Zhipeng Cao CIN: 300443421 Introduction The most influential accounting reporting criteria today is the International Financial Reporting Standards (IFRS) by and U.S Generally Accepted Accounting Principles (U.S. GAAP). These two different accounting standards have various emphases. In short, IFRS states principles and it leaves the decision-making in everyday questions for accountants, while US GAAP consists of very detailed measures. Under the globalization environment, many companies are operating under a global scale; however, each country has its own accounting standard which makes the translation more difficulty. So the demand for the convergence of the two most important standards comes out. (Accounting Reporting Criteria, 2009, March 23). In this paper, I will put more emphasis on the comparison of the detail differences between International Financial Reporting Standards (IFRS) and U.S Generally Accepted Accounting Principles (U.S. GAAP). I will also pay attention to the convergence of the two accounting principles. Body 1 In this part, I will mainly discuss the difference between IFRS vs. US GAAP; the table below shows the brief summary of the major differences between IFRS vs. US GAAP. I would like to discuss some of them. General approach The most significant difference between IFRS and U.S. GAAP exist in the general approach. IFRS mostly provides the basic accounting principle...
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...GAAP vs IFRS GAAP vs IFRS: Opposing the Proposed Shift Kelsey Perez Author Affiliation There has been a growing demand over the past twenty years to unite the business world under one conceptual framework for reporting financial statements. Currently, there are two types of frameworks used throughout the accounting world. They are the General Accepted Accounting Principles ( GAAP) and International Financial Reporting Standards (IFRS), the SEC is currently considering a shift from United States GAAP to IFRS. My opposition to the United States shift from Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards (IFRS) is based on the following three reasons; the cost of implementation, training requirements, and increased profit manipulation risk. Cost of IFRS Cost is another disadvantage of IFRS. Small and large businesses would be affected by the transition. “It is estimated that it would cost each business $32 million dollars to convert from GAAP to IFRS” (Paul & Burks, n.d. p. 4). The financial impact would be greater to small businesses compared to the large businesses. Large businesses have the available resources to train employees and implement the change. Small companies would have to bring in outside accountants or spend an exceptional amount of money to train employees and implement the change. Even if small companies used outside accountants, these accountants would be forced to retrain everything that they...
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...Comparing IFRS to GAAP Donald Cleveland University of Phoenix Kurt Meyer ACC/290 Author Note [Include any grant/funding information and a complete correspondence address.] Abstract [The abstract should be one paragraph of between 150 and 250 words. It is not indented. Section titles, such as the word Abstract above, are not considered headings so they don’t use bold heading format. Instead, use the Section Title style. This style automatically starts your section on a new page, so you don’t have to add page breaks. Note that all of the styles for this template are available on the Home tab of the ribbon, in the Styles gallery.] Keywords: [Click here to add keywords.] Comparing IFRS to GAAP In the financial industry there is a well-known difference between how the United States operates, and how the rest of the world conducts accounting practices. Generally Accepted Accounting Principles (GAAP) is the accounting standard practiced in the US. International Financial Reporting Standards (IFRS) is the accounting standard used around the world. GAAP is known to have more rules, while IFRS is based more on principle and general acceptance. In this paper GAAP and IFRS will be compared and contrasted in a brief overview. IFRS 2-1 The main difference between the formatting of IFRS and GAAP statement of financial of position and a GAAP balance sheet is the ordering of liquidity. IFRS does not require a particular order or any classification of accounts. It is common for companies...
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...IFRS vs. GAAP: What are the differences, how does it affect net income reporting and what difficulties may exist in mandating IFRS in the U.S. Introduction I propose to write a paper on some of the major differences which still remain between IFRS and US GAAP. Although the FASB and IASB along with the SEC have been working to converge the two accounting systems, many differences still exist. In particular I plan to show the effects on the reported net income of companies and highlight the difficulties of mandating the use of IFRS in the U.S. Resources abound on this topic, some include: Hughes S, Sander J. A U.S. Manager's Guide to Differences Between IFRS and U.S. GAAP. Management Accounting Quarterly [serial online]. Summer2007 2007;8(4):1-8. Available from: Business Source Complete, Ipswich, MA. Accessed November 7, 2014 SMITH L. IFRS and U.S. GAAP: Some Key Differences Accountants Should Know. Management Accounting Quarterly [serial online]. Fall2012 2012;14(1):19-26. Available from: Business Source Complete, Ipswich, MA. Accessed November 7, 2014. de Mesa Graziano, C., & Heffes, E. M. (2008). IFRS Section: Definition of Fair Value, One of the Differences Between U.S. GAAP and IFRS. Financial Executive, 24(10), 14 Romeo, G., & Bao, D. (2012). TEACHING INVENTORY USING U.S. GAAP AND IFRS: A COMPARATIVE PERSPECTIVE. Journal For Global Business Education, 1225-34. Siegel J., & Shim J. (2010) Accounting Handbook, Barron’s Educational Services,...
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...IFRS vs. GAAP: Same or Different ACC407 January 27, 2013 Catherine McBride IFRS vs. GAAP: Same or Different The Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB) are working on nearly a dozen joint projects designed to improve both U.S. Generally Accepted Accounting Principles (US GAAP) and International Financial Reporting Standards (IFRS), and ultimately make the standards fully compatible. But in the mean time, the two predominant accounting standards to this day are the U.S. GAAP (Generally Accepted Accounting Principles) and IFRS (International Financial Reporting Standards). These two standards have several differences because they both take a completely different approach to their methodology. The U.S. GAAP is more rule-based, where IFRS is principal-based. With IFRS's principal-based approach, a lot of room was left open for interpretations for similar transactions. It gives room for second guessing, debate and conjecture. Anytime you have a fundamental system that can be debated you create a forum of uncertainty that then requires an arbitrator who can settle the dispute. This arbitrator is called the standards setting board, and it provides fewer exceptions than a rule based system (Parrott, 2008). With the U.S. GAAP you have a rule-based system. This is a more clear approach that distinguishes between what seems correct and what is correct. There is no room for interpretation. Each process has a set...
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...Comparing IFRS to GAAP Nicole A. Walker ACC/290 September 7, 2015 Linda Gandy Comparing IFRS to GAAP International Financial Reporting Standards or IFRS for short, is the standard method of accounting that is used in a little more than 110 counties in the world. US Generally Accepted Accounting Principles, GAAP for short, is the method of accounting that is used regularly in the United States. International Financial Reporting Standards is more “principles based” method, while the US Generally Accepted Accounting Principles is more “rules based” accounting system. IFRS 2-1: In what ways does the format of a statement of financial position under IFRS often differ from a balance sheet presented under GAAP? IFRS guidelines do not specify a certain format. Companies usually report their assets in reverse order. IFRS financial statements have current and noncurrent assets and then current and noncurrent liabilities listed separately on their balance sheet. GAAP requires that accounts are ordered based on what could be liquidized first. Cash, assets, liabilities and equity in that order. (Epstein, 2013) IFRS 2-2: Do the IFRS and GAAP conceptual frameworks differ in terms of the objective of financial reporting? Explain. No, from what I have read about the IFRS and GAAP it seems to me that both authorities believe in reporting accurate and relevant information. The information is relevant in the eyes of a creditor or regulator and should be accurate to conform to either...
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...IFRS vs. GAAP ACC/291 June 1, 2015 Judith Bines IFRS vs. GAAP The International Financial Reporting Standards (IFRS) and the Generally Accepted Accounting Principles (GAAP) are rules used to ensure ethical reporting of financial information. During Accounting 291, we have learned how to apply these rules however the differences between the United States GAAP and the IFRS make it difficult to compare companies. Some of these differences appear in the measurement of “fair value”, component depreciation, the revaluation of plant assets, product development expenditures, contingent liabilities, and the accounting for liabilities. Moving to Fair Value Measurement To the average person, the meaning of “fair value” would seem to have one meaning but this is not the case under GAAP and IFRS. “Under IFRS 1-3, the fair value of a financial liability is the cost to transfer it to another market participant in an orderly transaction at the measurement date. This is subtly different to how the fair value of a financial liability is determined under the previous rules in IAS 39 where the fair value of a financial liability is the amount at which it could be settled between knowledgeable, willing parties in an arm's-length transaction” (McCarroll & Khatri, 2012). “The Accounting Standards Update (ASU) provides a converged meaning of "fair value," defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market...
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