884 Words Oct 7th, 2013 4 Pages
Due to the controversy economies have had towards which method to use for accounting, there has been a compromise to converge the two most commonly used methods – GAAP and IFRS. However, these two methods are still very different. The convergence project has yet to be completed; in the meantime, more and more countries are running towards the IFRS since it is more reliable and relevant. The main difference between these two methods is the US GAAP is rule-based while the IFRS is principle-based; this means that the US GAAP makes its decisions based on research and literature, while the IFRS bases its decisions on patterns that result in facts. A deeper look into the differences between these two methodologies shows
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Valuation of assets is considered a great difference between the two methods. GAAP always records its assets at historical price – the price paid at the point of sale – and not at their fair market value – an estimate of the price of an asset in the market today – which has had a lot of accountants say that historical cost is unreliable and irrelevant. IFRS, on the other hand, records its assets at fair market value, as long as there is market for the assets being revalued (Ernest & Young, 2011b).
Assessing the impairment of long-lived assets are slightly different. At first both GAAP and IFRS test for impairment if indicators exist, but it is the test that is different. GAAP has two steps that need to be followed in order to assess the impairment. First, it needs to assess if the impaired asset is recoverable, if not, then it proceeds to the next step, which is to calculate the impairment loss. IFRS has only one step, which is to calculate the recoverable amount. If the recoverable amount is less than the carrying amount – value of asset after deducting depreciation – then the carrying amount needs to be reduced to the recoverable amount and the difference between them is the impairment loss (Earnest & Young, 2011 a).
Financial statement presentation varies from GAAP to IFRS. The first variation is the financial period required for comparison. GAAP requires public companies to include the previous 2-year periods of their balance sheets, and 3-year periods

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