According to Merriam Webster’s Online Dictionary, one of the definitions of the word “rules” is pieces of advice about the best way to do something. Specifically when dealing with accounting there are many different opinions on what are considered the best rules. There are two sets of rules in the world of accounting: the Generally Accepted Accounting Principles (GAAP), primarily used by the United States, and the International Financial Reports Standards (IFRS), primarily used by other countries. Since 1999, the International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) have been working to remove the differences between the GAAP and IFRS. The main difference between GAAP and IFRS is that GAAP is rule …show more content…
Currently the IASB, FASB, and SEC have been working to complete the Convergence Project. There is no set date on when this will be completed, but they first must settle the differences between the GAAP and IFRS.
The multiple differences between GAAP and IFRS have been the biggest struggle for the IASB, FASB, and SEC because it has elongated the completion of the Convergence Project. The first difference between the two is that GAAP permits last in first out (LIFO), while IFRS prohibits LIFO (Kemp & Waybright, p. 260). The FASB and IASB have attempted to minimize this difference by switching all programs to first in first out (FIFO). This could affect U.S. companies because they could no longer move the costs of products from inventory to the cost of goods sold. A second difference is that IFRS has different accounting policies than GAAP. IFRS does not require uniform accounting policies between parent and subsidiary, while GAAP does. In order to minimize this difference, the FASB and IASB have been working towards the IFRS approach. This could affect U.S. companies because they would have to allow certain policies that they did not have before. The third difference is that IFRS uses a single-step method for impairment write-downs rather than the two-step method used in GAAP. The FASB and IASB have been pushing towards to single step method. This would particularly affect those Certified Public Accountants (CPAs) who work for U.S.
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As the responsibilities of the global harmonization of accounting standards IFRS and GAAP transfer to IASB, FASB’s influence is waning. Advantages of the convergence include high quality financial reporting, which lowers cost of capital for investors and the cost of borrowing for companies. However, there are disadvantages to be noted, such as the costs of introducing IFRS to current and potential accountants and the risk of reducing the uniformity of financial reports due to the lax rulings of IFRS, which promotes earnings management amongst companies. Although arguments regarding the convergence remain prevalent, the completion of IFRS and GAAP is inevitable. Come year 2015, accountants, investors, and companies alike will discover whether or not the pros outweighed the cons; or vice versa.
2007/2008 Edition This PricewaterhouseCoopers publication is for those who wish to gain a broad understanding of the key similarities and differences between IFRS, US GAAP and Swiss GAAP FER. No summary publication can do justice to the many differences of detail that exist between IFRS, US GAAP and Swiss GAAP FER. Even if the guidance is similar, there can be differences in the detailed application, which could have a material impact on the financial statements. It needs to be stressed that this brochure deals with the main differences only. Many more pages would be needed to be
The purpose of this paper is to describe what accounting convergence means and assess the likelihood of the convergence being completed and implemented in the next five (5) years. IFRS is the principle based set of standards that establish standards and dictate specific treatments. IFRS has become a global standard for companies when preparing financial statements. IFRS consist of multiple reports stated on the Wikipedia website. The two reports that will be discussed in the paper are IFRS and GAAP. GAAP is an Accounting Standard that provides guidance for financial
With the growth of international business there is a need to standardize financial statements globally. Presently there are “approximately 120 foreign private issuers currently that report to the Commission using IFRS financial statements.” By standardizing accounting practices investors will be able to make informed decisions based on comparability and accuracy of financial statements. The SEC released this statement in 2008, “We believe that IFRS has the potential to best provide the common platform on which companies can report and investors can compare financial information.” The SEC has created a “Roadmap” or plan to convert US GAAP over to IFRS. According to The Committee of
Although the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) have a lot of similar guidelines and expectations, they also differ in many ways. The IFRS employs more of a “principles based” accounting standards whereas GAAP utilizes more of a “rules based” approach. Even though there are differences between terminology, revenue recognition, gains and/or losses, and statement presentation, both standards do follow the same conceptual guidelines. With the Sarbanes-Oxley Act (SOX) of 2002, the standards expected of foreign countries are significantly less than those that reside as publically
Over a decade ago, it was believed that the whole world would likely adopt the Generally Accepted Accounting Principles (GAAP). At the point in time, the International Financial reporting Standards (IFRS) was only about ten years old. In the last decade, the IFRS has been adopted in many growing countries. Currently, it is anticipated that the U.S. will converge its GAAP with the international IFRS, leaving behind only a modified IFRS. This may occur as early as 2014.
One of the major differences is that one is based on rules and the other on principles. GAAP is more of a a rule-based method. These rules are essential to provide comparison of present and past performances. Whereas IFRS is a principle based method in which you can have different interpretations of the same tax-related
There are several differences between the International Financial Reporting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (GAAP). The 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. As a team me collaborated to answer the following seven questions.
There are two sets of accounting standards that are used worldwide. One is the International Financial Reporting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (GAAP). There is a huge desire for there to one set of accounting standards worldwide with the increase of companies performing business in many different countries and global expansion.
Măciucă, Ursache, Moroşan, and Apetri (2014) state IFRS and GAAP are two similar systems but they are not identical. IFRS has been accepted by the U.S. since 2008. Prior to 2008, companies had to reconcile financial records into GAAP format. Financial Accounting Standards Boards (FASB) and International Accounting Standards Boards (IASB) must continue to merge both standards for the benefit of all. Smith (2012) analyzed the financial data from international companies operating in the U.S. in 2005 and 2006 and discovered no significant differences between GAAP and IFRS. The differences between GAAP and IFRS can be cosmetic and substantive (p.
GAAP is known as Generally Accepted Accounting Principle, and it is an accounting standard used in the US approved by the U.S. Securities and Exchange Commission (SEC). On the other hand, IFRS is an International Financial Reporting Standards. It is an accounting standard that is commonly used in many parts of the world such as the European Union, Asia, and South America, and some of the U.S companies slowly adopt IFRS(Diffen). The purpose of IFRS to create a universal accounting rule or common language for businesses to understand especially for a foreign investor to understand international accounting standard or the same accounting language. It is considered to be opened an opportunity for new capitalist countries, for instance, China.
The US Generally Accepted Accounting Principles (GAAP) is a set of international accounting rules which originated from the United States. US GAAP can be defined as a set of accounting principles, standards and procedures that companies use to compile their financial statements (Elliott & Elliott, 2008). The International Financial Reporting Standards (IFRS) on the other hand are accounting rules originating from the United Kingdom. International Financial Reporting Standards (IFRS) are a set of accounting rules designed with a common global language for business affairs so that financial accounts of companies are understandable and comparable across international boundaries (Devinney, Pedersen & Tihanyi, 2010).
Revenue recognition is the accounting principle that deals with the time and method to place income on the books once the earnings process is complete. The United States Generally Accepted Accounting Principles (U.S. GAAP) is a rule based system that accountants must adhere to when performing accounting tasks. The U.S. GAAP revenue recognition rules allows for exceptions to certain transactions and requires companies to also follow regulations promulgated by the Securities and Exchange Commission. Conversely, the International Financial Reporting Standards (IFRS) is a principle based system that advocates for certain accounting principles that should be applied to all contracts and industries. The IFRS standards are created by the International Accounting Standards Board. In general, the U.S. GAAP accounting framework provides numerous rules on the issue of revenue recognition. Moreover, the U.S. GAAP rules are broken into categories based on the particular industry involved. Some of the industries that have specific U.S. GAAP rules are software and real estate. The IFRS system creates principles that should be applied to all industries without exception. The U.S. GAAP revenue recognition rules focus on realized or realizable revenue and whether it is earned. Conversely, IFRS revenue recognition principles focus on the whether there are potential economic benefits from a transaction and, if so,
The Convergence of U.S. GAAP with IFRS: A Comparative Analysis of Principles-based and Rules-based Accounting Standards