Question

In one or two paragraphs, write your opinion about what the author discusses: do you agree with his argument? In other words, do you think the convergence of global accounting systems is necessary? or could it be harmful? Why? Comparing GAAP & IFRS

Answer 1

IFRS stands for international financial reporting standards. It’s a set of accounting rules and standards that determine how accounting events should be reported in your business’s financial statements. Issued by the International Accounting Standards Board (IASB), IFRS aims to make financial statements consistent, comparable, and transparent across the world.

Importance of IFRS:

• IFRS Standards address this challenge by providing a high quality, internationally recognised set of accounting standards that bring transparency, accountability and efficiency to financial markets around the world.
• IFRS Standards bring transparency by enhancing the international comparability and quality of financial information, enabling investors and other market participants to make informed economic decisions.
• IFRS Standards strengthen accountability by reducing the information gap between the providers of capital and the people to whom they have entrusted their money. Our Standards provide information that is needed to hold management to account. As a source of globally comparable information, IFRS Standards are also of vital importance to regulators around the world.
• And IFRS Standards contribute to economic efficiency by helping investors to identify opportunities and risks across the world, thus improving capital allocation. For businesses, the use of a single, trusted accounting language lowers the cost of capital and reduces international reporting costs.

Basic differences between US GAAP and IFRS

1. US GAAP is rule based while IFRS is principle based.
2. US GAAP is mandatory for all companies which is operating in USA and is required to prepare its financial statement in USA eg Companies listed in NASDAQ whereas IFRS is to be followed by most countries operating outside USA.
3. US GAAP is for US Companies or companies operating within US, IFRS is mainly followed in the rest of the world.
4. IFRS is regulated by IASB whereas GAAP comes under FASB.
5. It is the US way of telling the world that I am different and I follow my own way.

Broadly, both the accounting standards are very similar to each other with some basic fundamental differences. Barring few, there are no major differences as far as learning is concerned. Eg. For valuation of inventory, US GAAP ASC 330 allows both FIFO, WAM and LIFO methods whereas IFRS under IAS 2 prohibits LIFO and allows only FIFO and WAM.

So if you know IFRS, you should not take much time to learn corresponding standards under the US GAAP.