US GAAP vs IFRS

Topics: Balance sheet, Financial statements, Generally Accepted Accounting Principles Pages: 2 (871 words) Published: October 17, 2013
US GAAP versus IFRS
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 that there’s a distinguishable diversity between their approaches for revenue recognition, valuation of assets, assessing impairment of long-lived assets, financial statement presentation, and changes in accounting policy and correction of error. When it comes to revenue recognition, there are a lot of similarities between GAAP and IFRS; however, the differences that exist are greater. The main difference is the specificity of when revenues are recognized. GAAP focuses more on the industry, and places different rules for different industries (Ernest & Young, 2011b). GAAP has specific rules to rendering of services with software, and also GAAP has prohibited the use of long-term contract accounting for industries other than construction, while IFRS allows the use of it as long as revenues and costs can be measured reliably and benefits are probable (Ernest & Young,2011b). Also, construction services have different accounting methods. GAAP can either use percentage of completion or the completed contract method; however, IFRS prohibits the use of the completed contract method, and uses the percentage of completion method. This means that IFRS recognizes its revenues after each period according to how far the project has been...

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Ernest & Young, LLC. (2011b). US GAAP versus IFRS the basics. Retrieved from http://www.ey.com/Publication/vwLUAssets/US_GAAP_v_IFRS:_The_Basics/$FILE/US%20GAAP%20v%20IFRS%20Dec%202011.pdf
Forgeas, R. (2008). Is IFRS that different from U.S. GAAP? Retrieved from http://www.ifrs.com/overview/General/differences.html
Grant Thornton, LLC. (2010). Comparison between U.S. GAAP and International Financial Reporting Standards. Retrieved from http://www.grantthornton.com/staticfiles/GTCom/Grant%20Thornton%20Thinking/Resource%20centers/IFRS%20Resource%20Center/IFRS%20files/GTUS%20Comparison%20Document%20-%20Edition%201%205.pdf
PwC. (2012). IFRS and US GAAP: similarities and differences. Retrieved from http://www.pwc.com/en_US/us/issues/ifrs-reporting/publications/assets/ifrs-and-us-gaap-similarities-and-differences-2012.pdf
Securities and Exchange. (2011). Work plan for the consideration of incorporating international financial reporting standards into the financial reporting system for U.S. users. Retrieved from http://www.sec.gov/spotlight/globalaccountingstandards/ifrs-work-plan-paper-111611-gaap.pdf
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