IFRS and GAAP: Similarities and Differences

This is just a matter of time before the accounting profession can be fully integrated into a high standard of international standard. More than a decade of progress has been made in aligning the United States generally accepted accounting principles with international financial reporting standards. As the two accounting standards continue to become standard international standards, they find that there are many similarities and differences between the methods. Although differences may require compromise, similarities show that convergence is a viable goal.

Generally Accepted Accounting Principles or GAAP are the general accounting standards of American GAAP. Certified Public Accountants (AICPA) has been developing steadily over the past 60 years; includes the following elements: Financial Accounting Standards Board (FASB) Standards, Interpretations and Personnel Positions; Accounting Principles (APB) Opinions; and AICPA Research Bulletins. Today, the Securities and Exchange Commission (SEC) oversees all US accounting practices and ensures accounting practices comply with GAAP standards. GAAP establishes standards for financial records to be relevant and reliable for any investor, shareholder or other financial reader. What about international companies? How do these companies develop financial information? International companies can not only compile financial data in accordance with GAAP standards; they must also take into account the rules of the International Financial Standards.

The International Accounting Standards Board (IASB) has developed International Financial Reporting Standards (IFRSs or iGAAPs) in London. The European Union today obliges all European companies to follow the IFRS accounting practice. Currently, more than 100 countries use IFRS. When the United States fully adopts IFRS, it is easier to compare US companies with foreign companies and thus allow American companies to capitalize on foreign markets.

GAAP and IFRS are in many respects the same, task. The conceptual frameworks of both methods are very similar to the structure, relying on their accounting goals, their elements and their qualitative characteristics. The great similarity between GAAP and IFRS is that both standard income statements, balance sheets and cash flow statements are used. When dealing with cash and cash equivalents, both methods are fundamentally the same. Another major similarity is that both GAAP and IFRS prepared the financial statements on an accumulated basis; ie the income is recognized when it is realized or realized. There are a number of other similarities between GAAP and IFRS, and thus to promote convergence in the near future, but before an international financial accounting standard exists, account should be taken of differences between GAAP and IFRS [19659002] According to GAAP and IFRS, One of the main differences between accounting practices is that GAAP is a rule-based and IFRS principle. Principles-Based Accounting allows you to interpret the same transactions differently, where rule-based GAAP follows the rules for preparing financial statements – this means there is no place for an error. In other words, GAAP standards are extremely stringent in accounting practice and disclosure requirements, while IFRS practices are less restrictive; For example, the GAAP method for preparing more stringent income statements requires a one-step or multi-step approach – IFRS does not mention the approach. In addition to GAAP's multi-step income statement, extraordinary and rare items are classified as extraordinary items – extraordinary items are not permitted under IFRS. The difference between the two methods is also significant in relation to the LIFO (last time out) cost assumption. GAAP only accepts the LIFO method for inventory valuation, while IFRS only uses average costs and FIFO (first out first) to inventory valuation. Differences between the two methods need to be solved in favor of economic globalization

Different methods can cause potential investors in international markets because it will be difficult to understand and understand financial information. It will be financially useful for the global economy to consolidate accounting standards into a set of rules. The FASB and the IASB have agreed on the compatibility of existing financial regulations and, if they are assured, to maintain compatibility. During the converging efforts, the FASB issued a rule that allows a fair value option for financial instruments. In 2009, the SEC allowed some US companies to apply IFRS and complete convergence planned for 2016.

To sum up, it is important for economic globalization to have GAAP become one of the high-standard international standards with IFRS. Uniform accounting standards for companies, investors, creditors, financial users, etc. It contains useful information that is relevant and reliable for making financial decisions. GAAP and IFRS similarities already make the merger easier. Although there are still many differences, short-term and long-term efforts are in the hope of consolidating GAAP and IFRS in the near future.

Source by sbobet