If you are looking for the differences between GAAP and IFRS, you are in the right place.
Nevertheless, let’s move into the topic.
It is essential to know precisely the GAAP and IFRS before going to their differences.
What is GAAP (Generally Accepted Accounting Principles)?
GAAP refers to a common set of standards, procedures and accounting principles which are issued by FASB (Financial Accounting Standards Board). In the US, every public company should follow the rules of GAAP to compile their financial statements. GAAP is a combination of recording information and authoritative standards. These principles improve the consistency, clarity, comparability of the financial information.
GAAP was contrasted with pro forma accounting and helped in governing the accounting rules.
What is IFRS (International Financial Reporting Standards)?
IFRS is a set of standard rules for financial statements so that they can be transparent, consistent, and comparable around the world. IFRS was issued by the IASB (International Accounting Standards Board). IFRS helps the companies in maintaining the reports and transactions with financial impact. The main aim of IFRS is to create a common accounting language to make consistent financial statements.
Here are the differences which you are waiting for.
Differences between GAAP and IFRS:
- GAAP is a rule-based system, whereas IFRS is a principles-based system.
- The guidelines of IFRS provide less overall detail when compared to GAAP.
- The theoretical principles and framework of GAAP leave less interpretation than IFRS accounting.
- The intuitive principles of IFRS sound more logical than GAAP.
- GAAP allows the rule Last-In-First-Out (LIFO), whereas IFRS banned it.
- Both GAAP and IFRS use the First-In-First-Out (FIFO) method.
- IFRS permits inventory reversals, whereas GAAP doesn’t.
- GAAP rules are used to compile the financial statements and IFRS state the transaction types reported in financial statements.
Still not satisfied?
Okay then look into more.
GAAP vs IFRS:
Generally Accepted Accounting Principles (GAAP)
International Financial Reporting Standards (IFRS)
GAAP is only used in the United States.
IFRS is used in more than 110 countries which includes South American and Asian countries.
It tends to be rule-based. The companies which use GAAP have industry-based guidelines to follow.
It is principles-based. It is used to interpret and judge the financial situation.
Allows both FIFO and LIFO methods.
Allows only FIFO but not LIFO methods.
Earlier write-downs are prohibited.
Allows write-down to be reversed earlier.
GAAP prohibited the revaluation.
IFRS allows revaluation (inventories, intangible assets, property and investments).
Takes a more conservative approach in the reversals of impairment losses.
Takes a less conservative approach in the reversals of impairment losses.
Costs are expensed as incurred with internal software exceptions.
IFRS has no specific guidance for software.
Requires long-lived assets like furniture, buildings and equipment.
Initially, IFRS requires the assets, but later it is reevaluated according to the market value.
GAAP has no separate category in investment.
It has a distinct category of investment.
GAAP has no exceptions in low-value assets.
IFRS allows leases by excluding low-value assets.
Hope you gained the information that you are looking for.
The above article shows the key differences between IFRS and GAAP. Apart from the differences, there are some similarities in them, such as Auditing standards, revenue from contracts with clients, and so on. GAAP and IFRS play a vital role in the financial growth of the company. Hope you are satisfied with this IFRS vs GAAP article. Happy Learning!
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