The International Accounting Standards Board

Historically, the major factors separating both standards were that IFRS is principles-based and US GAAP is rules-based. In a rules-based standard, there will be less ambiguity and the actions required are more defined whereas in a principle-based standard, there is a possibility of different interpretations being made for a similar type of transaction. (Forgas, 2008). Further, in a volatile economic environment, adopting a rules-based standard would be less risky for accountants and reduce potential litigation costs for the company in the event there is non-compliance or legal actions involved. (The Institute of Chartered Accountants of Scotland, ICAS, 2006) A rules-based standard prevents interpretation errors on the part of users from different

The International Financial Reporting Standards (IFRS) is the accounting framework used by the European Union, Japan, Canada, and other world economic leaders. The IFRS is based on the tenets of understandability, reliability, and comparability. It is based off the International Accounting Standards (IAS) and had the opportunity to be built from accounting ideas and principles used across the world. In recent years it also has had the chance to look at the United States Generally Accepted Accounting Principles (GAAP) and modify the rules to enhance clarity and consistency, intentionally setting itself apart from U.S.

Do the IFRS and GAAP conceptual frameworks differ in terms of the objective of financial reporting? This would be a no because, GAAP and IFRS maintain very perspectives on the neutrality of financial data. These influential groups agree that financial reporting data should be relevant and authentically represented. Figures that are important would be anything useful in the eye of an investor, creditor, or regulator. Data that is faithfully represented should follow industry standards and assessments have a duty to be conservative.

To understand the intricacies of transitioning to IFRS from the U.S. GAAP one must understand what both are. The U.S. GAAP is derived from a combination of standards and principles that are the preferred practices established in the U.S. The main governing bodies of the U.S. GAAP are the Financial Accounting Standards Board (FASB) and the Securities and Exchange Commission (SEC) . These two governing bodies work to ensure the standards of the U.S. GAAP are both relevant and faithfully represented (Wahlen, J. M., Jones, J. P., & Pagach, D. P. 2013).

Through this course we have been taking a closer look into the Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS). The book lays out the major similarities and differences between the two separate but equal accounting methods. I say, “Equal”, in the sense that the IFRS and GAAP accounting methods are two different ways that the any company that could come to the conclude the financial statements for any such accounting period. The differences that have apparent between the two methods, GAAP is only used in companies that have been started in the United States, whereas internationally IFRS has been adopted by those prospected companies.

Countries, including the US, that decide to converge with IFRS yet function under different economic and political environments will inherently implement the universal standard to fit their institutional infrastructures diminishing comparability between nations (Hail). There are significant differences in the foundation of US GAAP and IFRS, specifically IFRS’s principles-based accounting and US GAAP’s

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).

According to Intermediate Accounting, some of the standards between U.S. GAAP and IFRS that differ and are long-term projects for convergence are issues such as revenue recognition, the conceptual framework, and research and development costs (18). All of these issues are currently being worked on between the International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB). An advantage to the conceptual frameworks for both U.S.

I appreciate the chance to respond to the Financial Accounting Standards Board’s invitation to comment on the Proposed Accounting Standards Update-Property, Plant, and Equipment (Topic 360): Changes in Measurement of PPE on the Balance Sheet and Income Statement.

The IFRS are the standards, interpretations and the framework adopted and developed by the International Accounting Standards Board (IASB) (Freeman, 2014). These set of ac-counting standards would improve comparability of financial information as well as the flow and pricing of capital (Epstein at al 2009). IFRS is becoming the global standard for the prep-aration of company financial statements (Freeman, 2014). International compatible financial statements assist in lending decisions, loan monitoring, and establish international vendor credit and development of other international business relationship (Evans, et al.., 2005).

The Convergence of U.S. GAAP with IFRS: A Comparative Analysis of Principles-based and Rules-based Accounting Standards

In September of 2006, The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157: Fair Value Measurements ("FAS 157") to provide guidance about how entities should determine fair value estimations for financial reporting purposes. These guidelines coincide with the conceptual framework and provide a baseline for accounting professionals to gauge the true worth of an asset. The goal of the conceptual framework to provide clear concise information across the accounting profession. It allows regulators to provide a uniform standard to individuals and companies, as well as providing a platform to roll out future account developments in the field. However, despite the best efforts of regulators, there is always bumps on the road to providing a smooth and compliant framework for accountants.

The Financial Accounting Standards Board has issued for public comment two Exposure Drafts related to its disclosure framework project. The first exposure draft proposes amendments to Statement of Financial Accounting Concepts - Conceptual Framework for Financial Reporting, Chapter 3 – Qualitative Characteristics of Useful Financial Information. The purpose of this proposed amendment is to clarify the concept of “materiality”. FASB defines materiality as, information is material if omitting it or misstating it could influence decisions that users make on the basis of the financial information of a specific reporting entity. In other words, materiality is an entity-specific aspect of relevance based on the nature or magnitude or both of the items to which the information relates in the context of an individual entity’s financial report. Consequently, the Board cannot specify a uniform quantitative threshold for materiality or predetermine what could be material in a particular situation.

At the beginning of the 21th century, the Financial Accounting Standards Board (FASB) started to realize the importance of fair value accounting as for a new measurement basis for asset and liability. The FASB believed the primary objective of financial reporting is to provide relevant and useful information about the future cash flow to current and prospective investors and creditors (Whittington, 2008). Since the historical cost accounting usually gives information about past transaction, not information about the future, to existing shareholders or creditors, FASB thought financial statements based on historical cost accounting could not be relevant and useful to prospective investors, which makes them difficult to achieve the main

General Accepted Accounting Principles, (GAAP) can be defined as the common set of accounting rules, standards and protocols, set by policy boards, which financial institutions and other companies use to assemble their financial statements. On the other hand, International Accounting Standards Board develops and maintains the International Financial Reporting Standards, which is a single set of accounting standards set aside with the aim of being applied internationally. As an accounting standard used in a number of countries across the world, IFRS have proven to be more effective in the representation of economics of transaction more than GAAP since it is based on principles rather than rules (Bellandi, 2012).