Question

US generally accepted accounting principles(GAAP) is similiar but not identical to International Financial Reporting Standards (IFRS). Please compare and contrast their financial accounting guidelines.

Typed answer please.

Answer 1

Answer:

GAAP:

Generally accepted accounting principles, or GAAP, is a set of rules that encompass the details, complexities, and legalities of business and corporate accounting. The financial accounting standards board uses GAAP as the foundation for its comprehensive set of approved accounting methods and parties.

IFRS:

IFRS is a set of international accounting standards stating how particular types of transactions and other events should be reported in financial statement. IFRS is issued by the international accounting standards board, and they specify exactly how accountants must maintain and report their accounts.

IFRS were established in order to have a common accounting language, so business and accounts can be understood from company to company and country to country.

GAAP guidelines:  principle of regularity, consistency, sincerity, permanence of methods, non-compensation, prudence, continuity, periodicity, materiality,  utmost good faith.

• Key difference between GAAP and IFRS:

The important difference between GAAP and IFRS are explained as under:

1. GAAP stands for generally accepted accounting principles. IFRS is an abbreviation for international financial reporting standard.
2. GAAP is a set of accounting guidelines and procedures, used by the companies to prepare their financial statement. IFRS is the universal business language followed by the companies while reporting financial statement.
3. Financial accounting standards board issues GAAP whereas international accounting standard board issued IFRS.  
4. Use of last in first out (LIFO) is not permissible as per IFRS which is not in the case of GAAP.
5. Extraordinary items are shown below the statement of income in case of GAAP, Conversely, in IFRS, such items are not segregated in the statement of income.
6. Development cost is treated as an expense in GAAP, while in IFRS, the cost is capitalised provided the specified conditions are met.
7. Inventory reversal is strictly prohibited under GAAP, but IFRS, allows inventory reversal subject to specified conditions are fulfilled.
8. IFRS is based on principles, whereas GAAP is based on rules.

Similarities:

Both are guiding principles that help in the preparation and presentation of a statement of accounts. A professional accounting body issues them, and that is why they are adopted in many countries of the world. Both of the two provides relevance, reliability, transparency, comparability, understandability of the financial statement.

At last i can say that as efforts are continuously made to converge these two standards, so it can be said that there is no comparison between GAAP and IFRS. Moreover, the differences between the two are as per a particular point of time that may get a change in the future.