Question

Review the section discussing international accounting in chapters 15, 20, 22, 23, and 26. Are there major similarities and differences between U.S. GAAP and IFRS? Which of the difference do you find the most interesting? If there is a convergence between U.S. GAAP and IFRS, would you choose the U.S. GAAP or IFRS method? Why? Also, discuss if you had any change of option since the discussion in Module 5.

Answer 1

Are there major similarities and differences between U.S. GAAP and IFRS? Which of the difference do you find the most interesting? If there is a convergence between U.S. GAAP and IFRS, would you choose the U.S. GAAP or IFRS method? Why?

There are a lot of similarities between U.S. GAAP and IFRS. United States was one of the main countries which were against adopting to IFRS considering the complexity in US GAAP. But the Financial Accounting Standard Board of US has been working with IFRS to issue similar standards for financial reporting. One of the major similarity is that the revenue recognition standard issued by IFRS and US GAAP recently. When IFRS issued IFRS 15 revenue from contracts with customers by revoking its old standard IFRS 11 construction contracts and IFRS 18 Revenue to issue a standard that is similar to US GAAP. US GAAP and IFRS using the same 5 step model for revenue recognition. Both standards have more similarities like these.

US GAAP and IFRS have more differences than the similarities mentioned above. Differences in reporting their financial statements can be considered as very important differences. IFRS requires current assets, current liabilities, fixed assets and fixed liabilities to be reported separately in the financial statements, but it's not mandatory for us GAAP even though it recommends it. IFRS requires deferred taxes to be shown as a separate item on the face of financials, but we can include it with Assets and liabilities under US GAAP. A company has to submit 4 financial statement under IFRS, balance sheet, income statement, changes in equity, cash flow statement, and footnotes, but US GAAP requires five statement such as balance sheet, income statement, statements of other comprehensive, income statement of changes in equity statement of cash flow and footnotes.

I would choose IFRS over US GAAP considering its acceptance all over the world. Also one very important thing, we have to consider for selecting IFRS over US GAAP is that IFRS follows a principle-based approach but US GAAP follows the rule-based approach. Adoption of IFRS will create a platform for wider investment choice and it will help to create a more efficient international capital market.