Comparing IFRS To GAAP Paper

The U.S is moving toward IFRS (Forgeas, 2008). In the near future, all US company may need to report financial statements under IFRS. This makes the adaptation of IFRS unavoidable. Recently, some large multinational

The primary concern of most accountants, CPAs, CEOs, CFOs, corporations, financial analysts and managers is the treatments of different accounts. If IFRS takes effect how will it affect the revenue recognition principles, accounting treatment for leases, accounts receivable, changes in estimates and extraordinary items, inventory accounts, schools, businesses, retraining of CPA and the list goes on.

With the growth of international business there is a need to standardize financial statements globally. Presently there are “approximately 120 foreign private issuers currently that report to the Commission using IFRS financial statements.” By standardizing accounting practices investors will be able to make informed decisions based on comparability and accuracy of financial statements. The SEC released this statement in 2008, “We believe that IFRS has the potential to best provide the common platform on which companies can report and investors can compare financial information.” The SEC has created a “Roadmap” or plan to convert US GAAP over to IFRS. According to The Committee of

A congruent between International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) is that both specification tend to use a statement of cash flows, income statement and a balance sheet (Nadel, 2010). When confronting cash equivalents and cash, both approaches are essentially similar in characteristic. Furthermore, the leading reciprocal is that both IFRS and GAAP assist in producing financial statements on an accrued basis; generally meaning that revenue is often recognized once it is realized (Nadel, 2010). In the course of time this will assist in a complete merger of both accounting principles in the near future; eventually a merger will assist with the differences associated with both IFRS and GAAP allowing for certain principles to be removed or restructured.

The GAAP/IFRS convergence will require U.S. corporations to rework their financial statement presentation. If GAAP principles were to be listed in a book, it would be nine inches thick. IFRS fits into a book only

There are subtle differences between the presentation of the IFRS statement of financial position and the US GAAP balance sheet. One primary difference is that IAS 1.66-.67 requires for the statement of cash position to be classified by current or non-current assets and liabilities, while US GAAP has no requirement for the balance sheet to be classified by current or non-current assets and

One of the major differences is that one is based on rules and the other on principles. GAAP is more of a a rule-based method. These rules are essential to provide comparison of present and past performances. Whereas IFRS is a principle based method in which you can have different interpretations of the same tax-related

Financial statement presentation varies from GAAP to IFRS. The first variation is the financial period required for comparison. GAAP requires public companies to include the previous 2-year periods of their balance sheets, and 3-year periods

Based on my research regarding the United Kingdom, U.S. SEC should mandate adopt IFRS. U.S. and U.K are two largest stock markets. The world’s capital markets know no borders. The participants in these markets need high-quality, transparent, and comparable financial information to enable them to make sound

Măciucă, Ursache, Moroşan, and Apetri (2014) state IFRS and GAAP are two similar systems but they are not identical. IFRS has been accepted by the U.S. since 2008. Prior to 2008, companies had to reconcile financial records into GAAP format. Financial Accounting Standards Boards (FASB) and International Accounting Standards Boards (IASB) must continue to merge both standards for the benefit of all. Smith (2012) analyzed the financial data from international companies operating in the U.S. in 2005 and 2006 and discovered no significant differences between GAAP and IFRS. The differences between GAAP and IFRS can be cosmetic and substantive (p.

On February 24, the SEC unanimously agreed to publish a statement of continued support for a single set of high-quality global accounting standards. The SEC acknowledged that IFRS is best positioned to be the global standard. Even without a set conversion timeline from the SEC, IFRS has been affecting

For example, it was found an increase in market liquidity and a decrease in cost of capital (Daske et al, 2008; Leuz and Verrecchia, 2000); a larger trading volume (Drake et al, 2010); positive economic consequences in terms of corporate debt financing, especially for bond financing (Florou and Kosi, 2009); and growing investment flows from foreign mutual funds (Covrig et al, 2007). From another perspective summarizing the strand of research is they are overall in the investors’ shoes. They focused on investigating whether investors benefit more from IFRS adoption than its associated costs (Armstrong et al 2010; Lee, Walker and Zeng 2013). For example, arguably, the increased market liquidity is a benefit accruing to IFRS adoption while the impaired investors’ confidence on the reliability of financial information is an associated cost. These studies generate mixed evidence regarding the effect of IFRS adoption and the vast majority of them give conclusions premised on specific assumptions or circumstances such as the existence of financial reporting incentives and inherent strong enforcement (Christensen, et al 2008) as well as well-established investor protection mechanism (Leuz and Wysocki, 2008; Bruggemann et al, 2010). Despite

The US Generally Accepted Accounting Principles (GAAP) is a set of international accounting rules which originated from the United States. US GAAP can be defined as a set of accounting principles, standards and procedures that companies use to compile their financial statements (Elliott & Elliott, 2008). The International Financial Reporting Standards (IFRS) on the other hand are accounting rules originating from the United Kingdom. International Financial Reporting Standards (IFRS) are a set of accounting rules designed with a common global language for business affairs so that financial accounts of companies are understandable and comparable across international boundaries (Devinney, Pedersen & Tihanyi, 2010).

In the 2008 Memorandum of Understanding between the FASB and IASB regarding the ongoing convergence project involving GAAP and IFRS, revenue recognition was one of the subjects that was supposed to be settled by 2011. This indicates that there is a difference between the way that revenue is recognized under IFRS and the way it is recognized under US GAAP. Deloitte & Touche has prepared a white paper outlining some of the differences between the two that the two agencies are attempting to resolve as part of the convergence process. There are five different areas of difference between the two systems. These are percentage of completion, sell-through-type arrangements, contingent consideration, variable consideration and royalties, and modifications.

Revenue recognition is the accounting principle that deals with the time and method to place income on the books once the earnings process is complete. The United States Generally Accepted Accounting Principles (U.S. GAAP) is a rule based system that accountants must adhere to when performing accounting tasks. The U.S. GAAP revenue recognition rules allows for exceptions to certain transactions and requires companies to also follow regulations promulgated by the Securities and Exchange Commission. Conversely, the International Financial Reporting Standards (IFRS) is a principle based system that advocates for certain accounting principles that should be applied to all contracts and industries. The IFRS standards are created by the International Accounting Standards Board. In general, the U.S. GAAP accounting framework provides numerous rules on the issue of revenue recognition. Moreover, the U.S. GAAP rules are broken into categories based on the particular industry involved. Some of the industries that have specific U.S. GAAP rules are software and real estate. The IFRS system creates principles that should be applied to all industries without exception. The U.S. GAAP revenue recognition rules focus on realized or realizable revenue and whether it is earned. Conversely, IFRS revenue recognition principles focus on the whether there are potential economic benefits from a transaction and, if so,