October 9, 2012
US GAAP vs. IFRS
The Financial Accounting Standards Board (FASB) developed the United States Generally Accepted Accounting Principles (GAAP) has been used in US corporations for over 75 years. It allows financial statements from all corporations to be compared accurately and efficiently, and serves as a guideline for accountants.
GAAP is slowly being taken out for the International Financial Reporting Standards (IFRS) as global business goes across the world. GAAP applies only to United States financial reporting. GAAP and the international rules have close similarity. The differences can lead a financial statement user to believe incorrectly that a company A made more money than company B because they report using different rules.
The difference between GAAP and IFRS is the means of inventory valuation. In this case, GAAP permits accountants to use Last-in First-out, First-in First-out, and weighted average. Under IFRS, LIFO is not allowed. If United States corporations are forced to switch to LIFO under a universal accounting standard, they will have large increases in income tax. The use of LIFO allows them to avoid larger income taxes in times of inflation.
Another example of the different procedures between IFRS and GAAP is in the evaluation of intangibles. GAAP focuses mostly on recording them at a set price, and amortizing that value over the amount of useful life of the intangible. IFRS stresses constant re-evaluation of the price, and recognition at the intangible's fair value (Miska).
One of the greatest benefits of adopting IFRS is the fact that the Securities Exchange Commission (SEC) and the International Accounting Standards Board (IASB) would be working together to develop the best, most effective accounting principles. Converting to an accounting standard that is less rule-based, and more principle oriented would definitely save American businesses trouble as well.
IFRS authorize three