Ifrs Vx. Gaap

IFRS versus GAAP

Anne Giorno

Acc/291 - Principals of Accounting II

January 12, 2015

Robert Hayes

IFRS versus GAAP

When a company needs to prepare and present its business income and expense, they must follow accounting standards. These measures are put in place as a guideline for financial accounting practices. Two main accounting standards in place in the world are, Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). GAAP is primarily used in the United States, and IFRS is used in the European Union as well as many other countries. This paper will discuss the similarities and differences between the two entities and how there is negotiations towards the world’s businesses adopting the IFRS standards to help investors and financiers all over the world better understand the financial situation of companies they invest in, do business with, or extend credit to.

GAAP and IFRS

Louge (n.d.) GAAP were established in 1973 and are set by the Financial Accounting Standards Board (FASB), an organization of accountants, financial analysts, and regulators who draw up accounting practices to meet ongoing changes in the markets. When a new issue comes up, the FASB evaluates the problem, develops a proposed accounting procedure, and sends it for review to different users of financial statements, including corporations and analysts. One of the trademarks of GAAP is the importance of smooth earnings results from year to year. The idea is to give investors a sense of normalized results rather than the actual cash in and cash out. For example, taxes are reported based on statutory rates, no matter what a company paid. Capital purchases may be depreciated over several years instead of taken as expenses in the year acquired. Under GAAP, companies are required to disclose information about their accounting choices and their costs in the footnotes. (para 3)

IFRS are a set of accounting standards for the preparation of...