Question

In your opinion, which GAAP, US or international, provides for the most effective means to reliable and     

relevant financial reporting? Why? Give examples.

Answer 1

When compared to GAAP (Generally Accepted Accounting Principles), IFRS(International Financial Reporting Standards) provides for the most effective means to reliable and relevant financial reporting because IFRS represents and captures the economics of the transactions better than GAAP. IFRS is more Principles based of Accounting while GAAP is more rules based of Accounting.

Inventory: GAAP allows LIFO method for inventory which shows low net income and does not shows the actualflow of income. LIFO is not allowed under IFRS.

Intangible Assets: Under IRS Intangible assets development costs are capitalised when there are future economic benefits. But GAAP , it incurs as expense.

Fixed Assets: IFRS recognises Fixed assets at Cost when it is purchased but over the time it is revalued to market fair value. and the additional components with useful life are depreciated . GAAP uses Historical method and it allows depreciation of additional components but is not required.

Impairment Losses: When it is required, IFRS allows the reversal of impairment losses for all the assets except goodwill but GAAP does not allow such reversal.

Inventory Written Down Reversals: Both of them allows for the written down of inventory when the fair market value decreases. IFRS only allows such written down inventories to be reversed when the fair market value is increased again. GAAP does notallow such reversal.

Fair Value Revaluations: IFRS allows the fair value revaluation which is increase or decrease for the inventory, Property, Plant and Equipment, intangible Assets and investment in Marketable Securities but GAAP allows fair value revaluation only for investment in Marketable securities.