Comparing IFRS to GAAP
Comparing IFRS to GAAP
This paper looks at relevant comparisons of IFRS, “International Financial Reporting Standards” and GAAP, “Generally Accepted Accounting Principles”. These two frameworks of accounting principles and practices share a lot of standards and procedures, but also differ on accepted policies. This paper will answer those standards and differences but also show the comparison of the two.
Let’s look at what ways does the format of a statement of financial or position under IFRS often differ from a balance sheet presented under GAAP. IFRS “International Financial Reporting Standards” doesn’t command a precise order of classification of accounts on the statement of financial position. Companies report assets in reverse order of liquidity. Looking at the order of accounts on the statement of financial position is illustrated with the following: Long Term Assets; Current Assets; Shareholder Equity; Long Term Liabilities; Current Liabilities.
GAAP “Generally Accepted Accounting Principles” definitely requires all accounts to be in order based on degree of liquidity. Hence cash is frequently reported first and non-current assets get reported last. Here is the order of what’s characteristically found with GAAP balance sheets: Current Assets; Long Term Assets; Current Liabilities; Long Term Liabilities; Shareholder Equity.
There are all types of comparisons and differences with these two governing bodies. One of those differences is Inventory. “Gary Lasker, CPA, CFE” wrote in article, “http://www.bsd-cpa.com/index.php/comparing-and-contrasting-international-financial-reporting-standards-ifrs-and-generally-accepted-accounting-principles-gaap © copyright BassSolomonDowell, llp 2011.” Inventory – IFRS does not allow the use of LIFO as a method for determining inventory cost. Only specific identification, the first-in, first-out (FIFO) method, and a weighted average cost formula are allowed. Inventory write-downs should generally be made on an item-by-item basis when using IFRS. U.S. GAAP allows for write-downs to be made using categories of items and like IFRS, does allow write-downs to be performed on an item-by-item basis. When certain conditions are met, IFRS allows inventories that were previously written down to market value to be reversed. On the other hand, reversals of inventory write-downs are prohibited under any circumstances in U.S. GAAP. So we see the similarities and also the differences in these two bodies on inventory postings.
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.
There are commonly used terms that are used under IFRS that are synonymous with common stock and balance sheet. These terms are; Balance Sheet is synonymous with the “Statement of Financial Position” and Common Stock is normally branded as “Share Capital Ordinary” on IFRS financial statements. Also lets look at under IFRS, can the definitions of revenues and expenses include gains and losses? Revenue in IFRS is used to define the total amount of economic benefits arising from the normal operating activities of your business. Nevertheless it doesn’t contain non-operating gains. This would applies likewise to expenses where loses don’t include non-operating activities. Let’s compare and contrast the rules regarding revenue recognition under IFRS versus GAAP. With GAAP, you can...
References: Gary Lasker, CPA, CFE” wrote in article,
© copyright BassSolomonDowell, llp 2011.
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