Differences Between Gaap and Ifrs

Differences between GAAP and IFRS

The globalization of business and finance has led to the mass success adoption of IFRS (International Financial Reporting Standards) in more than 110 countries (Fraser. L & Ormiston, A 2010). The IFRS is considered more of a “principles based” accounting standard in contrast to GAAP (Generally Accepted Accounting Principles) which is more rules based”. Because of the IFRS “principle based” responsibilities, it represents and captures the economics of a transaction better than GAAP. There are certainly numerous differences between GAAP and IFRS.

According to the U. S. Journal, a business enterprise that reports under US GAAP should use the titles ”balance sheet”, “statement of financial condition.” These financial statements must be displayed prominently on the statements. Also, comparative financials are urged but not required. GAAP is thought to be more transparent in that it prohibits the practice of “hidden reserves” (Fraser, L & Ormiston, A 2010). The downfall of GAAP is that currently there are more than 150”pronouncements” as to how to account for different types of transactions.

The advantages of IFRS are firstly, it allows people to see various companies from different parts of the world on the same plane. Investor bases would increase on the financial reports would become comparable. Secondly, the cost savings for multinational companies would be beneficial. One drawback with IFRS is not improving quality. It presently has a high quality set of standards and superior enforcement.

References

Fraser, L &Ormiston, A (2010) Understanding Financial Statements (9th ed, Pearson Educator

http://swensonadvisors.com

http://post,hyssa,org/ny