Comparing IFRS to GAAP
Comparing IFRS to GAAP Essay
Johnny Leng
ACC/291
September 22, 2014
James Gardner
Comparing IFRS to GAAP Paper
The International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP) are designed to help standardize accounting practices for the internal and external users to understand. Though GAAP actually has the term “principles” within the title, the IFRS is perceived to be based more on principles while GAAP is regarded as being based on set rules. By being more "principles based", IFRS, arguably, represents and captures the economics of a transaction better than U.S. GAAP (Nguyen, 2014). There are many fundamental differences between the IFRS and GAAP that affect the way that internal and external users of the financial statements must understand. Familiarizing oneself with these differences will strengthen the user’s interpretation of the financial statement(s), making for better business decisions. Fair value measurements give the users of financial statements a precise view of the value of a given company’s assets. The FASB and IASB have both taken some necessary steps to attain the fair value measurement, but they have some varying aspects in their approach as well. Both the IFRS and GAAP require that firms provide information about fair value measurement practices in the notes to the financial statements. Under the IFRS and GAAP systems, companies need to report assets at either fair value or book value depending on the circumstances. All assets in the same class are generally to receive the same appraisal. The differences between the two systems would be that the IFRS values receivables using a two-tiered method that analyzes individual receivables first, and then evaluates receivables as a whole to determine if there are any deficiencies. When an asset has different parts to it that should each be depreciated with different treatments, component depreciation occurs. If parts of the asset provide
Johnny Leng
ACC/291
September 22, 2014
James Gardner
Comparing IFRS to GAAP Paper
The International Financial Reporting Standards (IFRS) and U.S. Generally Accepted Accounting Principles (GAAP) are designed to help standardize accounting practices for the internal and external users to understand. Though GAAP actually has the term “principles” within the title, the IFRS is perceived to be based more on principles while GAAP is regarded as being based on set rules. By being more "principles based", IFRS, arguably, represents and captures the economics of a transaction better than U.S. GAAP (Nguyen, 2014). There are many fundamental differences between the IFRS and GAAP that affect the way that internal and external users of the financial statements must understand. Familiarizing oneself with these differences will strengthen the user’s interpretation of the financial statement(s), making for better business decisions. Fair value measurements give the users of financial statements a precise view of the value of a given company’s assets. The FASB and IASB have both taken some necessary steps to attain the fair value measurement, but they have some varying aspects in their approach as well. Both the IFRS and GAAP require that firms provide information about fair value measurement practices in the notes to the financial statements. Under the IFRS and GAAP systems, companies need to report assets at either fair value or book value depending on the circumstances. All assets in the same class are generally to receive the same appraisal. The differences between the two systems would be that the IFRS values receivables using a two-tiered method that analyzes individual receivables first, and then evaluates receivables as a whole to determine if there are any deficiencies. When an asset has different parts to it that should each be depreciated with different treatments, component depreciation occurs. If parts of the asset provide
References: Product Development. (2014). Retrieved September 22, 2014, from http://www.businessdictionary.com/definition/product-development.html Nguyen, Joseph. (2014, August 18). What are some of the key differences between IFRS and U.S. GAAP? Retrieved from http://www.investopedia.com/ask/answers/09/ifrs-gaap.asp