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GAAP Vs. IFRS

As the drive towards convergence between GAAP and IFRS becomes faster and more furious, the details of the differences that are yet to be converged become more and more important.

GAAP or the Generally Accepted Accounting Principles are promulgated by the US Financial Accounting Standards Board (FASB). The IFRS or the International Financial Reporting Standards (IFRS) are defined by the International Accounting Standards Board (IASB).

Significant Differences

While some of the differences are part of the standards themselves, some differences emerge due to interpretation of the standards. Some of the significant differences are:

• With regard to debt and financial liability, instruments that were considered as equity by the US GAAP are treated as debt under IFRS
• Related to revenue recognition, the US GAAP has detailed guidelines for different industries. These guidelines adopt standards suggested by other US accounting standard organizations.
• There are differences with respect to the recognition of expenses. The US GAAP recognizes stock option expenses vested over a longer period of time than the IFRS.
• IFRS allows an entity to reverse inventory write-downs in select situations, whereas US GAAP does not. IFRS also requires the recognition of certain development costs that US GAAP accounting does not recognize.
• The consolidation model under IFRS is very different from the US GAAP. The IFRS allows consolidation based on the power exercised by the company on the financial and operational policies of the other entity.
• LIFO (last in, first out), an inventory accounting, method used by companies throughout the U.S. economy to determine both book income and tax liability is banned under IFRS.
• IFRS prohibits reporting items as extraordinary while U.S. GAAP permits reporting items as extraordinary in the income statement, under some limited circumstances.
• US GAAP requires three years of comparative financial information while IFRS requires only one year’s worth.

The major differences are in these areas: accounting framework, financial statements, business combinations, equity instruments.

Read more about IFRS and find out how O2I can help with IFRS compliant accounting. Contact us with your accounting and bookkeeping requirements and our Customer Engagement team will contact you within 24 hours.

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