Difference Between IFRS and US GAAP

IFRS vs. US GAAP Infographics

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Critical Differences Between IFRS and US GAAP

  • IFRS tends to be a globally accepted standard for accounting, with usage in more than 110 countries, whereas US GAAP tends to be used within the United States and usually does have a different set ofAccounting rules are guidelines to follow for registering daily transactions in the entity book through the double-entry system. Here, every transaction must have at least 2 accounts (same amount), with one being debited & the other being credited. read more accounting rulesAccounting RulesAccounting rules are guidelines to follow for registering daily transactions in the entity book through the double-entry system. Here, every transaction must have at least 2 accounts (same amount), with one being debited & the other being credited. read more than for the rest of the world.GAAP generally focuses on research and is considered rule-based, whereas IFRS focuses on the holistic pattern and deem to base on the principle.One can also note that liabilities are segregated as current and non-current liabilities under GAAP, whereas IFRS warrants no segregation.Under GAAP, the following items classify as operating expenses:Operating Expenses:Operating expense (OPEX) is the cost incurred in the normal course of business and does not include expenses directly related to product manufacturing or service delivery. Therefore, they are readily available in the income statement and help to determine the net profit.read more Interest received and paid, dividends received and paid. However, under IFRS, interest received and dividendsDividendsDividends refer to the portion of business earnings paid to the shareholders as gratitude for investing in the company’s equity.read morereceived may be under the category of either operating or investing, whereas interests and dividends paid may be either operating or financing.Under IFRS, it would be possible for a company to consider an equity method as ‘held for sale,’ whereas such classification would not be possible under GAAP.There are also differences when it comes to measuring properties. IFRS reports properties either using the cost or revaluation model, whereas GAAP prohibits the usage of the revaluation model. Even the method of LIFOMethod Of LIFOLIFO (Last In First Out) is one accounting method for inventory valuation on the balance sheet. LIFO accounting means inventory acquired at last would be used up or sold first.read more (Last In and First Out) is only allowed under GAAP and not under IFRS.A separate head called extraordinary itemsExtraordinary ItemsExtraordinary Items refer to those events which are considered to be unusual by the company as they are infrequent in nature. The gains or losses arising out of these items are disclosed separately in the financial statement of the company.read more  is allowed in the income statement only under the GAAP framework, whereas IFRS does not consider such an item.When it comes to research and development, under IFRS, research costs are expensed, whereas development costs are capitalized. In the case of GAAP, both research and development costs are capitalized.

Head to Head Comparison

Conclusion

Financial reporting tends to provide and facilitate comparison between companies allowing both cross-sectional and time series analysis. The objective of an excellent financial reporting would be to provide sufficient financial information about the reporting entity such that it would tend to be useful for all the potential investors, lenders, stakeholders, creditors, etc. so that it helps them in making decisions about providing the various resources to the entity.

For this reason, standard-setting bodies like International Accounting and Standards Board (IASB) and Financial Accounting Standards Board (FASB) have come into place. They specify that transparency and comprehensiveness are how financial reporting statements are presented through the issuance of their financial reporting frameworksFinancial Reporting FrameworksFinancial reporting is a systematic process of recording and representing a company’s financial data. The reports reflect a firm’s financial health and performance in a given period. Management, investors, shareholders, financiers, government, and regulatory agencies rely on financial reports for decision-making.read more being IFRS and GAAP.

Though there tends to be a significant difference between the treatments of items between the two frameworks, efforts are being made to bring about convergence between the two standards and how financial information is reported. Until then, it becomes crucial for an analyst to be cautious of such differences when attempting to decode and analyze financial reports. Nevertheless, such frameworks do go a long way in having to set up standards in the way the financial statementsFinancial StatementsFinancial statements are written reports prepared by a company’s management to present the company’s financial affairs over a given period (quarter, six monthly or yearly). These statements, which include the Balance Sheet, Income Statement, Cash Flows, and Shareholders Equity Statement, must be prepared in accordance with prescribed and standardized accounting standards to ensure uniformity in reporting at all levels.read more get reported

This article has been a guide to IFRS vs. US GAAP. Here, we discuss the top 14 differences between IFRS and US GAAP, infographics, and a comparison table. You may also have a look at the following articles –

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