Ifrs vs Gaap

Assignment: IFRS vs GAAP

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Accounting

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On November 14, 2007 the U.S. Securities and Exchange Commission (SEC) voted to allow foreign private issuers to file their financial statements using the International Financial Reporting Standards (IFRS) (Lutolf, 2007). The SEC wanted to reduce burden amongst foreign parties however other accounting regulatory commissions have been against a complete switch to IFRS. The reasons why they are against a switch vary from monetary and regulatory reasons. A switch to IFRS would cause a few speed-bumps for US accountants but a global methodology of reporting accounts could become a benefit for operating business in foreign locations.

According to Ernst & Young (2012) the Generally Accepted Accounting Principals (GAAP) and IFRS both define inventories as assets held for sale. Also the cost of inventory includes all direct expenditures to get inventory ready for sale. Costing methods prohibit LIFO from IFRS. I believe that LIFO is beneficial only to a small selection of companies in the U.S.. The loss of LIFO under IFRS will not have a pro-founding effect on US companies.

With the loss of LIFO under IFRS a reasonable question would be about income tax differences. The truth is that income tax is reported nearly the same for both the GAAP and IFRS. The tax basis for GAAP is mostly indisputable for the assets and liabilities whereas IFRS is the amount deductible for tax purposes (Ernst & Young, 2012).

The actual presentation of data differs between the GAAP and IFRS. The GAAP can allow a single year of financial statements to be presented whereas IFRS requires all amounts to be posted with respect to previous amounts reported. However public companies under the SEC must provide the two most recent balance sheets (Ernst & Young, 2012).

The U.S. GAAP and IFRS are so closely related that...