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The Similarities between GAAP and IFRS
The Similarities between GAAP and IFRS
The Similarities between GAAP and IFRS
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The globalization of business has resulted in the need for compatible accounting standards that can be used internationally for financial reporting. As a result, the International Financial Reporting Standards (IFRS) were developed by the International Accounting Standards Board (IASB) to unify the various financial reporting methods and create a single accounting standard which can be applied to any financial statement worldwide (Byatt). The global standardization of financial reporting will increase the readability and enhance comparability of globally traded companies’ financial statements, without the need of conversion or translation. There are a few main differences between the International Financial Reporting Standards (IFRS) and the U.S. Generally Accepted Accounting Principles (U.S GAAP). The increasing recognition and acceptance of the International Financial Reporting Standards by accounting professionals in the United States, will affect the way in which the U.S will record financial statements in the future.
The main differences between the current U.S. GAAP reporting and IFRS reporting include: revenue recognition, inventory valuation, reporting assets, accrued expenses and the preparation of the statement of cash flows. The IFRS has two primary revenue standards and four revenue focused interpretations for revenue recognition which include the sale of goods, the sale of services, the use of assets, and construction contracts (Kaiser). According to the U.S GAAP, revenue can only be realized or earned, and revenues are only recognized if and only if an exchange transaction takes place. Under the U.S GAAP, a financial entity will record one hundred percent of a sale’s transaction as revenue upon selling a given good...
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The goal of the Codification is to simplify the organization of thousands of authoritative U.S. accounting pronouncements issued by multiple standard-setters. To achieve this goal, the FASB initiated a project to integrate and topically organize all relevant accounting pronouncements issued by the U.S. standard-setters including those of the FASB, the American Institute of Certified Public Accountants (AICPA), and the Emerging Issues Task Force (EITF)
To help accounting professionals easily navigate through 50-plus years of unorganized US generally accepted accounting principles (GAAP) and standards the Trustees of the Financial Accounting Foundation approved the Financial Accounting Standards Board (FASB) Accounting Standards Codification (Codification.) By codifying authoritative US GAAP, FASB will provide users with real-time and accurate information in one location. Concurrently, FASB developed the FASB Codification Research System; a web-based system allowing registered users to electronically research accounting issues. Since 2009, the codification became the single source of nongovernmental authoritative GAAP.
U.S. GAAP and International Financial Reporting Standards (IFRS), formerly known as iGAAP, are two accounting standards used in today’s world of financial reporting. These standards have differences as well as similarities in reporting requirements. Organizations in the United States are required to follow GAAP principles in preparing financial statements and other financial reports. Whereas, organizations outside of the United States may follow IFRS. Balance sheet reporting and formatting is an area in which GAAP and IFRS may differ, yet be similar in many respects. The balance sheet is a financial statement of what a company owns and what it owes at a given date and time (Spiceland, Sepe, & Nelson, 2013). This paper will address differences and similarities in respect to balance sheet reporting and formatting as it relates to fixed assets and liabilities, inventory, and goodwill.
GAAP uses the statement of comprehensive income in addition to the statements listed previously, unlike IFRS. “Inventory write-downs should generally be made on an item-by-item basis when using IFRS. U.S. GAAP allows for write-downs to be made using categories of items and like IFRS, does allow write-downs to be performed on an item-by-item basis” (Lasker). Reversals of inventory write-downs under GAAP are prohibited. There are three other topics used to compare IFRS and GAAP in the Diffen article. They are: purpose of the framework, objectives of financial statements, and underlying assumptions. The purpose of framework for GAAP has no provision that requires management to consider framework a standard while under IFRS management is required to consider the framework if there is no standard. The main objective of financial statements under GAAP and IFRS is the broad focus to provide relevant info to a wide range of stakeholders. The underlying concern for IFRS is going concern under GAAP this concept not
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There are general rules and concepts that preside over the field of accounting. These general rules, known as basic accounting principles and guidelines, shape the groundwork on which more thorough, complex, and legalistic accounting rules are based. The Financial Accounting Standards Board (FASB) uses the basic accounting principles and guidelines as a foundation for their own comprehensive and complete set of accounting rules and standards.
The International Accounting Standards Board, (IASB), began life as the International Accounting Standards Committee (IASC) in the 1973. The IASC was created in June 1973 as a result of an agreement by the accountancy bodies of Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland and the United States. These countries constituted the Board of IASC at that time.
The third organization that helps to regulate the accounting standards is the IASB. “Our mission is to develop, in the public interest, a single set of high quality, understandable and international financial reporting standards (IFRSs) for general purpose financial statements”(IASB 2008,¶ 1). The IASB consists of a board that is made up from nine different countries with the sole purpose of expanding accounting standards. Their main hope and goal is to one day that there will be only one set of accounting standards that will be used throughout the world.
Financial statements: The statements are prepared in accordance with International Financial Reporting Standards (IFRS), thus the company accounts are understandable and comparable across international boundaries.