US GAAP and IFRS Differences
GAAP vs IFRS is the most arguable topic in accounting where the former is described as the financial reporting method having universal applicability whereas the latter are the set of principle-based guidelines composed for financial accounting. Since the last few years, IFRS has gained substantial significance, because of which over hundred countries have adopted IFRS as the standard for accounting. The issuing organizations of the two are consistently working on their convergence. Let’s check below for the IFRS and US GAAP similarities and differences.
Comparison Chart of Difference Between IFRS and Indian GAAP
Difference Between GAAP and IFRS Financial Statements
In general, GAAP mainly focuses on providing relevant information to a wide range of stakeholders. GAAP offers segregated objectives for business and non-business entities. Usually, broad focus is to offer relevant information to a wide range of stakeholders. IFRS offers a similar set of objectives for business and non-business entities.
The documents required in GAAP financial statements include Balance sheet, cash flow statement, income statement, statement of comprehensive income, changes in equity, footnotes. On the other hand, IFRS requires Balance sheet, cash flow statement, income statement, changes in equity, footnotes.
Difference Between US GAAP and IFRS
In GAAP, Standard structure and rules are introduced for typical financial accounting. Whereas IFRS represents a universal financial reporting method which enables international businesses to understand each other and work together.
US GAAP characterize Relevance, reliability, differentiability, and understandability. GAAP institutes a hierarchy of these features. Relevance and reliability are key qualities. Comparability is secondary. Understandability is regarded as a user-centric quality.
Relevance, reliability, differentiability, and understandability establish a hierarchy of IFRS features. The IASB framework states that its decision cannot b dependent upon particular circumstances of individual users.
In addition, The US GAAP framework describes an asset as a future economic advantage. The IFRS framework describes an asset as a resource from which future economic advantage will flow to the company.
Key Difference Between UK GAAP and IFRS
The significant difference between GAAP and IFRS are described under:
GAAP is a set of account based guidelines and procedures, implemented by the companies to prepare their financial statements. IFRS is a universal business language subsequent to the companies while reporting financial statements.
International Accounting Standard Board issues IFRS whereas Financial Accounting Standard Board issued GAAP
Use of LIFO is not permissible according to IFRS which is not in the case of GAAP.
Development Cost is regarded as an expense in GAAP, whereas IFRS, the cost is capitalized if the specified conditions are met.
IFRS is dependent on principles, whereas GAAP is based on rules.
Similarities Between GAAP and IFRS
Both are guiding principles that allow for the preparation and presentation of a statement of accounts. An authoritative professional accounting body issues them, and this is the reason they are adopted in different countries across the world. Both of the accounting methods provide relevance, reliance, comparability, understandability, transparency, of the financial statement.
FAQs on Difference Between GAAP and IFRS
1. What is Meant By GAAP?
Answer: GAAP otherwise known as Generally Accepted Accounting Principles refers to the standard framework, principles and procedures incorporated by the companies for financial accounting. The principles are announced by the Financial Accounting Standard Board (FASB). It is a set of accounting standards which have standard ways and rules for recording and reporting of the financial data i.e. balance sheet, cash flow statement, income statement etc. The framework is adopted by publicly traded organizations and a maximum number of private companies in the US.
GAAP principles are updated at periodical intervals in order to satisfy the current financial needs. It ensures the consistency and transparency of the financial statement. The information provided according to GAAP by the financial statement is quite beneficial to the economic decision makers such as investors, creditors, shareholders, etc.
2. What is Meant By IFRS?
Answer: IFRS is an abbreviation for International Financial Reporting Standard. It is a globally adopted method of financial reporting established by the International Accounting Standard Board (IASB). Formerly, it is called International Accounting Standard (IAS). The standard is utilized for the preparation and presentation of the financial statement i.e. balances sheet, cash flow statement, income statement, alterations in equity and footnotes, etc.
IFRS guarantees comparability and understandability of international business. It has an objective to provide users with data about the financial position, performance, profitability and liquidity of the company, to allow them to make rational economic decisions.
Currently, around 120 countries have adopted IFRS as a foundation to govern accounting statements. With the adoption of IFRS, the demonstration of financial statements will be easier, better, and similar to the overseas competitors.
