GAAP versus IFRS
GAAP versus IFRS
GAAP versus IFRS
GAAP versus IFRS
Generally accepted accounting principles (GAAP) are defined as a widely accepted set of rules, conventions, standards, and procedures for reporting financial information, as established by the Financial Accounting Standards Board (FASB). FASB established the generally accepted accounting principles for federal reporting entities. GAAP is used for financial reporting in the assembling financial statements (Generally). International Financial Reporting Standards (IFRS) are a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statements. IFRS areissued by the International Accounting Standards Board (International).
There are similarities between GAAP and IFRS involving financial statements appearance. US GAAP includes financial statements such as income statements, balance sheets, and other widespread income statements. These statements are known as statement of acknowledged income and expenses and cash flow to IFRS. Accrual accounting is used for both standards unless the situation is uncommon conditions. Similarities are a very uncommon between GAAP and IFRS, but there are plenty of differences.
There are numerous differences between GAAP and IFRS. First, the requirement of financial periods is a difference. In GAAP, relative financial statements are offered. Single year financial statements are available under certain situations. Most of the time companies will have two balance sheets of the most up to date year. In IFRS, comparative data is to be kept concealed from the previous years of the financial statements.
The next difference is the layouts of balance sheets and income statements. In GAAP, there are not requirements for the arrangement of the balance sheet or the income statement. However, public companies are to follow a detailed outline in a particular regulation. In IFRS, there is not a written standard for the layout of the statements, but there is a minimum requirement of items that must be included in the statements. The necessary items are not like those required in the detailed outline for public companies that GAAP requires.
One of the last differences involves the income sheet. GAAP requires expenses for be shown based on their function. For example, the cost of good expense, which includes the way a good is produced, should be listed separately from expenses of the administration. Administrative expenses include office salaries and other expenses not related directly to a product. In the IFRS, expenses are presented by functions or nature. Examples of this include salaries and depreciation. Nevertheless, if a function is chosen for an expense, a note must be included that states the nature of the expense.
The income statement also includes extraordinary items and this is different between GAAP and IFRS. GAAP's extraordinary items to include on the income statement are items are both unusual and infrequent. This would vary on the area in which the company is located. For example, if a company is located in Florida, a hurricane would not be considered an extraordinary item. Another example that it would be considered an extraordinary item would be a hurricane in Arizona because that is unusual and infrequent.
GAAP is used in the United States, while the IFRS is used international and expanding to some parts of the United States. GAAP and IFRS treat many areas of the format of the income statement and balance sheet differently. There are many more differences between these two standards that go into great detail. In conclusion, GAAP and IFRS are two standards of accounting with different requirements, but are used to do the same tasks.
Works Cited
"GAAP Definition." InvestorWords.com - Investing Glossary. Web. 10 Nov. 2010. .
"Generally Accepted Accounting Principles." FASAB Homepage. Web. 10 Nov. 2010. .
"International Financial Reporting Standards (IFRS) Definition." Investopedia.com - Your Source For Investing Education. Web. 10 Nov. 2010. .
"US GAAP vs IFRS." Jan. 2009. Web. 10 Nov. 2010. .
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