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    Diffrences Between IFRS and GAAP





Subject Business Pages 5 Style APA



The International Accounting Standards as popularly referred to the IAS is an international body that creates accountancy policies and regulates the accounting standards throughout the world in conjunction with the other International Accounting Standards Board. The International Financial Reporting and Interpretations Committee (IFRIC) oversee the activities of the International Financial Reporting Standards. The Financial Accounting Standards Board in the US oversees and largely interprets the US GAAP (Generally Accepted Accounting Principles). The IAS was founded in the year 1960 and rolled out its initial accounting standards in 1966 commencing with the IAS 1 to IAS 41 in the year 2000. The investment in foreign nations and the development and growth of global multinationals has over the years been very attractive to prospective international corporate investors who due to aggressive competitive advantage and the glamour for high profits have embraced the International Financial Reporting Standards in a bid to lower costs and make comparisons more accurate and reliable. The International Financial Reporting Standards is developed by the International Accounting Standards Board. The Financial Accounting Standards Board (FASB) is responsible for the policies and development of the Generally Accepted Accounting Principles (GAAP). While most countries including the European Union have largely adopted and implemented the IFRS while US has remained in supportive of its GAAP standards. However, the condition and requirement by the US Securities and Exchange Commission in the US (SEC) that all companies adopt and implement the converged International Financial Reporting  (S) standards by 2014 that was prompted by the convergence reports by the EU of the many benefits that would accrue to multinational companies after adoption of IFRS. Mueller (1967) asserts that there are three elements that affected the implementation of the IFRS. These were business complexities possibilities, state of economic standards and development, reliance on specific laws and political persuasion (Holgate and Fuchs, 2010).

There are many differences between the IFRS and the US GAAP

Statement of Financial Position

As represented by IAS 1, a company presents financial statements under classified headings like current and non-current liabilities and assets. IFRS requires unclassified financial statements as recorded in the order of liquidity to be accompanied by satisfactory information that provides reliable and relevant details of the quoted figures (IFRS, n, d,)

US GAAP has no requirement for classified financial statements presentations while it also places no restriction on the presentation of unclassified financial statements as based on liquidity.

GAAP fronts SEC regulation that requires a particular prescribed format of financial statements and other minimum disclosures as outlined under GAAP. The IFRS has no particular prescribed format for financial presentation for the statement of financial position.

Property, Plant and Equipment

Under IFRS property, plant and equipment have separate components depreciation methods then each should be president while GAAP allows component accounting but IFRS does not prohibit its application. GAAP does not permit asset revaluation while IFRS allows revaluation of assets at fair value. Intangible assets may be considered and revalued at active market rate while the revaluation of intangible assets is not allowed under GAAP. 

IFRS has very clear definition on investments unlike GAAP that has no clear definitions and the requirement for public disclosure of fair value is not a requirement under GAAP.


They are measured as per the IFRS standards at the lower cost compared to the net realizable value while GAAP ensures that inventories are measured at the lower cost compared to the market Schmid DeSmith, and Klein. 2014).

IFRS uses the FIFO (First in First Out) in inventory valuation or the weighted average cost approach. GAAP recommends the use of LIFO (Last in First Out) besides the use of FIFO or the weighted average approach. The stock is usually written down to its net realizable value when its less than the cost in IFRS while in GAAP the stock is written down to the market value when it is less than its cost.

Impairment of non-financial assets

According to IFRS Depending on certain assets and circumstances, the assets are individually tested and as part of sales and cash generating unlike the IFRS, GAAP groups individual assets for impairment. For example, an asset group may be identified with either cash inflows or outflows.

IFRS allows reversal of impairment except in goodwill while GAAP prohibits such reversals. In a possibility of equal number of changes, organizations obligations are calculated at mid points as per the requirement of IFRS while GAAP recognizes no amount for a range as its better hence the obligation would be considered at the lower end. The provisions IFRS are discounted only if the effect of the discounting is basically material while US GAAP recognizes contingencies that are not discounted but only in limited cases.

The nature of IFRS does not particularly address all the provisions of contract termination. GAAP recognizes the liabilities and responsibilities of contract termination. GAAP recognizes that termination costs on termination of contracts.

Specific Items of Profit or Loss

According to the International Financial reporting Standards, the statement of Profit and Loss and also the OCI are required to be presented as a single statement. Though the IFRS spells out the specific items that must be on the income statement, it does not however provide a basic accounting standard. IFRS requires an analysis of the expenses and classified by either function or nature. Presentation of alternative income is not limited in IFRS. The disclosure of extraordinary items is generally prohibited under IFRS.

The SEC and the GAAP regulations prescribe the basic requirement, that is, the mandatory format and the least number of presentations. GAAP places no format for account presentation and the minimum presentation of disclosures. GAAP places no condition for particular analysis of expenses.

Key compensation for management staff is usually disclosed under IFRS but under GAAP the disclosure of the financial compensation for managers is not necessary but requires separate sheets for documentation. Also no special designation for any assets that require distribution set aside. The classification, presentation and also measurement of the requirement are under classification for assets that have been held resale (Schmid, DeSmith and Klein, 2014).

To conclude, both the IFRS and the US GAAP don’t really address the real the issue of controlling. The interest rates are far too much better but the basis of control provides the standards of reporting. The IASB and FASB have continued to work together despite the many challenges that the two accounting boards have faced. The IASB and US GAAP have tried to ensure that the IFRS is adopted globally and the two have a over the years tried to harmonize their relationship where they were expected at that time by 2015.


Doupnik, T. S., Hoyle, J.B. and Schaefer, T.F. (2012) Advanced Accounting. Boston:

Holgate, P., and Fuchs, R., 2010, Similarities and Differences-A Comparison of IFRS and US GAAP, PWC Publication October 2010.

IFRS, n, d, International Financial Reporting Standards, retrieved from http://www.ifrs.org/Documents/IAS27.pdf

Schmid, D., DeSmith, S., and Klein. G. 2014, The IFRS and US GAAP: Similarities and Differences, PWC Publications, retrieved December 3, 2015 from www.pwc.com/ifrs



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