Ifrs vs. U.S. Gaap: Differences and Consequences of U.S. Adoption

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IFRS vs. U.S. GAAP: Differences and Consequences of U.S. Adoption
A Study of the Issue of Comparability
Daniel Morey
East Texas Baptist University

Author Note
This paper was prepared for managers and business owners who are concerned about the possible U.S. adoption of IFRS, and its effects on financial reporting and other effected areas.

IFRS vs. U.S. GAAP: Differences and Consequences of Adoption
A Study of the Issue of Comparability
In the United States all publicly traded companies are required to use GAAP (Generally Accepted Accounting Principles) as the laws that regulate their accounting. The reasoning behind U.S. GAAP is so investors can accurately compare one company to another. In America there has been a long history of people who have abused GAAP, and manipulating their numbers so that the company looks more attractive to potential investors. This manipulation then causes a need for GAAP to be added upon more and more, making GAAP law based than based on principals. Currently U.S. GAAP is well over seven thousand pages, with a good amount (about 2,000 pages) being dedicated to industry accounting.
The International Financial Reporting Standards, or IFRS, is the international version of U.S. GAAP. It is used by over one hundred twenty countries, and is headed by the International Accounting Standard Board. The IASB is seeking to use IFRS to do to the world what GAAP did to the United States, provide common accounting standards so investors can accurately tell the financial position of any publicly traded company. IFRS is principals based rather than law based, consequently IFRS is only about two thousand pages long, then same length that U.S. GAAP uses to detail industry accounting specifications.
The problem that has risen is that as countries become more active globally there is an increasing need to have comparability between companies of two different nations. Meaning that an investor cannot accurately compare two companies if



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