Gaap vs Ifrs

Topics: Generally Accepted Accounting Principles, International Financial Reporting Standards, Depreciation Pages: 20 (6672 words) Published: December 6, 2012
Comparison of reporting discrepancies between IFRS and GAAP

Kaci Amon, Poonam Aujla, Daniel Aurora, Yuanyan Fang, Mark Gonzalez

Accounting 306 C1
Professor Xuhong Luo
August 12, 2012

Executive Summary
The generally accepted accounting principal (GAAP) and international financial reporting standard (IFRS) are standards governing how economic events are reported. In the United States, the Securities and Exchange Commission (SEC) relies on the FASB, the accounting standard-setting body of the US, to develop accounting standards that public companies must follow when publishing financial statements. On the other hand, many countries outside of the Unite States have adopted the International Financial Reporting Standard (IFRS) which is issued by the International Accounting Standard Board (IASB). In recent years, the FASB and IASB have worked closely to try to minimize the differences in their standards and principals and to merge the two systems in the future.

The purpose of this paper is to compare and contrast some of important differences between US GAAP and IFRS and, though this analysis, give a better understanding how these standards apply in the real world accounting field. This paper analyzes similarities and differences in revenue recognition, asset impairment, consolidation processes, contingencies, and depreciation. In revenue recognition, the definition and treatment of revenue recognition according to US GAAP and IFRS is different. GAAP recognizes revenue when all of the following criterions are made: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the seller’s price to the buyer is fixed or determinable, and collectability is reasonably assured. IFRS, on the other hand, has more general requirements and less specified guidance. In asset impairment, the primary difference between GAAP and IFRS is that US GAAP requires a two-step process while IFRS only requires a one step process to evaluate impairment loss. This difference can be attributed to a tradeoff between reporting reliability in GAAP and reporting relevance and timeliness in IFRS. In consolidation process, the difference lies in the preparation of the consolidated financial statements, the consolidation model, the loss of control of a subsidiary, and the equity method investments. GAAP’s recognition criteria for contingencies is higher than that of IFRS due to differing standards for a contingency to be “likely” and for estimating the amount to be accrued. For depreciation, IFRS requires that asset componentization guidance, residual values, and useful lives are to be reviewed at the balance sheet date, while US GAAP does not have this requirement.

This paper also discusses the accounting transactions associated with each standard, including journal entries, deferred tax impact, and any impacts on equity and income. Scholarly articles cited and materials used are referenced at the end of the paper.

Comparison of reporting discrepancies between IFRS and US GAAP There are two primary financial reporting methods that US Corporations are utilizing: US Generally accepted accounting principles, which will be referred to as US GAAP for reporting in the US, and International Financial Reporting Standards, which will be referred to as IFRS for reporting outside of the US. In 2008, the Securities and Exchange Commission (SEC) began formulating a roadmap of convergence from US GAAP to IFRS. While some areas of financial reporting require the same treatment, others have differed. While some of the differing reporting methods have been resolved, there are several areas that still require convergence, which include but are not limited to: revenue recognition, asset impairment, consolidation, contingencies, and depreciation. In the following pages you will read about the aforementioned five areas and the journal entries that would be required for each discrepancy, whether or not...

Cited: Arnold, Steve. "IRS Risk Planning and Controls Execution." Journal of Accountacy 3rd ser. 208 (2009): 34. Print.
Briner, Russell F. "The CPA Journal." The CPA Journal. The CPA Journal, Mar. 2001. Web. 24 July 2012. <>.
"US GAAP versus IFRS- The Basics." Ernst and Young. N.p., Dec. 2011. Web. 20 July 2012. <>.
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