This paper will help one to identify the differences between the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP). The understanding of these dynamics in recent times will be highlighted. Their variance and the impact of any their differences will be tackled broadly. All the two approaches are run through the International Financial Reporting Standards (IFRS) measures.
Generally accepted accounting principles (GAAP), are rules used in accounting to prepare standardized financial statements. They include the balance sheet, income statements, and cash flows. Mostly publicly traded companies and many private companies in the United States use them. The income of GAAP is measured so that the people who are making economic decisions can make timely information for investors and creditors.
The implementation of GAAP is done through disclosure and measurement principles. The Securities and Exchange Commission (SEC) requires all publicly traded companies to follow GAAP financial reporting. The International Financial Reporting Standards (IFRS) are principles-based standards, framework, and interpretations that were adopted by the International Accounting Standards Board (IASB).
Most of the standards making up IFRS are known by their former name International Accounting Standards (IAS). The board of the International Accounting Standards Committee (ISAC) issued the standards. The new IASB then took over from IASC all the work of setting up International Accounting Standards (Wiley, K, et al. (2010).
Compliance and convergences of IFRS
James (2011) argues that the IASB has acquired a greater legitimacy and stature when the EU required all the public companies to prepare consolidated accounts based on IFRS. The most significant impediments to convergence include, low level national capital markets and less guidance on first-time application of IFRS standards.
International Financial reporting standards (IFRS) has the major significance to US based enterprises as result of the dealing with other companies outside United States and thus the legal framework of IFRS has been introduced to deal with the same. These rules have been applied in so far as dealing with accounting areas, but the application of IFRS outside United States is different and therefore it brings difference outcome and there has also been a debate as to whether it should be placed in the United States financial system.
IFRS has been given the mandate to make international comparisons to be easy to analyze by all the participating members. This usually becomes difficult because every country that makes use of those rules have other rules that govern them. Synchronizing accounting standards across the globe has been one of the major challenges of the international accounting community.
Differences of the Of GAAP and the IFRS
In GAAP, there is no detailed guide of the statement presentation. The financial statements are under one roof, but on the IRFS, there is detailed account of the presentation of the money statements and limited items on the statements provided. According to FASB framework, their work is similar to IASB’s detailed account in the field of making and Presenting of the monetary accounts. When applying IFRS rules there is merger and detailed account while giving a promise to work under FASB framework. In GAAP there is need to compare, the detailed financials, which are not, always included in the IRFS principles.
The need to specify the location required in all monetary statements including the irrelevant data that may seem inappropriate is always paramount. This is usually done in monetary analysis or by a m Where in GAAP there is the need to compare the detailed financials but which is not a must on the other hand IRFS there is the need to specify the location required in all monetary statements including the irrelevant data that may seem inappropriate which may be done in either in monetary analysis or by a mere note taking in notes.
In many formats of GAAP, the many pronouncements usually come from the Financial Accounting Standard Board (FASB). The more recent pronouncements have come as warnings and others urge the merger of the two entities. Since most companies report using same rules, knowing the main rules of GAAP usually forms the basis for all accounting principles in the US. GAAP is slowly being taken away from being one of the standards to be used by organizations. This is done to favor IFRS as the global markets become more pervasive and great in demand. GAAP reporting is usually used in the United States of America hence books that are reported from Britain usually show a big different in their reporting. The differences in reporting in GAAP and IFRS can make a company think they made more or less money because of the differences in reporting. All financial accounting is usually supposed to be assembled and reported objectively.
The merit and the guiding principles when using the U.S. GAAP format is always detailed on the auditing books and the writings are rarely sourced. The concept is not applicable when using IFRS principles.
Some ideas will be noted as derivatives under IFRS but under US GAAP, they are not. In this case, the US GAAP in many times excludes some ideas that do not meet the threshold. There is a major interrelation when it comes to acquired contingencies on both the IFRS and GAAP. In IFRS, for example its acquired liabilities and assets are subject to contingencies and are made to be of good consideration. GAAP require all the acquired liabilities to be established in a different dimension (James 2011). All parties that make use of any reports must make sure all the data prepared is free from bias and all the principles are followed to the latter.