IFRS vs. GAAP W2
In the past, each country developed its own respective accounting standards and implemented them on a national scale. As the global economy emerged, markets converged and accounting systems became more dynamic and were made consubstantial in order to support off-shore business operations and alliances with foreign brands. In recent history, the US has made its accounting principles more congruent with that of the IFRS. One of the outstanding differences between the two accounting systems "lies in the conceptual approach: U.S. GAAP is rule-based, whereas IFRS is principle-based". (Forgeas, 2008) Other major differences include: Consolidation -- IFRS favors a control model whereas U.S. GAAP prefers a risks-and-rewards model. Some entities consolidated in accordance with FIN 46(R) may have to be shown separately under IFRS. Statement of Income -- Under IFRS, extraordinary items are not segregated in the income statement, while, under US GAAP, they are shown below the net income. Inventory -- Under IFRS, LIFO (a historical method of recording the value of inventory, a firm records the last units purchased as the first units sold) cannot be used while under U.S. GAAP, companies have the choice between LIFO and FIFO (is a common method for recording the value of inventory). Earning-per-Share -- Under IFRS, the earning-per-share calculation does not average the individual interim period calculations, whereas under U.S. GAAP the computation averages the individual interim period incremental shares. Development costs -- These costs can be capitalized under IFRS if certain criteria are met, while it is considered as "expenses" under U.S. GAAP. (Forgeas, 2008)
There are obvious advantages associated with the application of the IFRS accounting standards, as it will allow for seamless intercompany compatibilility, with over 110 countries that currently practice the principles outlined by the IFRS. However one could extrapalate logistical...
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