As the name suggests, GAAP (US Generally Accepted Accounting Principles), promulgated by the US Financial Accounting Standards Board (FASB) is the accounting standard used in the USA, while IFRS (International Financial Reporting Standards), defined by the International Accounting Standards Board (IASB) is the standard of accounting used in over 110 various countries across the world. In its primary form, GAAP is considered as a "rule-based" accounting system, whereas IFRS is more "principle-based".
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. The US Securities and Exchange Commission is strongly in favor of retaining GAAP, whereas other countries such as Japan, China, and India are slowly gravitating towards using IFRS in some form or other.
The ever-increasing global adoption of IFRS affects US-based businesses, as other countries require IFRS for public filings and other statutory reports. Such IFRS requirements also impact US businesses through cross-border activities, M&A (Merger and Acquisition) activities, etc. As a result, financial bilingualism is a far more important criterion for US accountants, as US-based investors keep looking towards overseas investment opportunities. On the flipside, the US market also remains favorably open to non-US businesses who can prepare their statements using IFRS.
With the help of this article, our aim is to provide a broader understanding of IFRS and GAAP differences, and assist investors and accounting professionals to become increasingly bilingual in these two accounting standards.
Many experts and world renowned economists believe in the long-term vision of a consistent, high-quality, globally-accepted accounting standard. In case of IFRS vs. GAAP, it is IFRS which is best positioned to serve that role. However, countries such as US cannot move from their existing standard to a new one outright.
Keeping the above factors in mind, both the FASB and IASB should continue to focus on improving the quality of their standards while focusing on inter-operability so as to prevent further divergence between US GAAP and IFRS.
At O2I, we consider ourselves as one step ahead of the rest when it comes to providing convergence solutions for IFRS and GAAP for global companies. With 20 years in providing stellar finance and accounting services, you can bank on us to channelize your inputs for immediate gains.
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.