Financial Statements Ifrs vs. Gaap
Financial Statements IFRS vs. GAAP
Kathrine D. Nepon
Strayer University
John Ware
ACC 401
November 27, 2011
ABSTRACT
For those in the business world, particularly in the accounting field, a major issue has surfaced in recent years relating to the differences between Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS). Currently, the majority of countries in the world follow International Financial Reporting Standards guidelines; however, the United States still uses GAAP. This topic has been a main focus because there is a plan for convergence between the two frameworks in the near future. The United States accounting system will undergo drastic changes when this occurs, but in the long-run the idea is to simplify the accounting procedures around the world. “Through these projects, some covering major components of the financial statements, the boards intend to improve financial reporting information for investors while also aligning US and international accounting standards. These projects are a significant move toward achieving a common accounting framework, a necessary step in the globalization of business and investment” (PriceWaterhouseCoopers LLP, 2011). The main difference between GAAP and IFRS is that GAAP is considerably rule-based, whereas IFRS is more principal-based which means IFRS has room for interpretation. The specific differences are far too many to cover in a short presentation, however, an explanation of some major differences are mentioned below.
INCOME STATEMENT
While each framework requires prominent presentation of an income statement as a primary statement, there are some major differences in the way items are handled. The three main differences that this writer noticed are the actual format of the income statement, the handling of exceptional and also how extraordinary items are handled. First we will discuss the format changes. Under IFRS; there is no prescribed format
Kathrine D. Nepon
Strayer University
John Ware
ACC 401
November 27, 2011
ABSTRACT
For those in the business world, particularly in the accounting field, a major issue has surfaced in recent years relating to the differences between Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS). Currently, the majority of countries in the world follow International Financial Reporting Standards guidelines; however, the United States still uses GAAP. This topic has been a main focus because there is a plan for convergence between the two frameworks in the near future. The United States accounting system will undergo drastic changes when this occurs, but in the long-run the idea is to simplify the accounting procedures around the world. “Through these projects, some covering major components of the financial statements, the boards intend to improve financial reporting information for investors while also aligning US and international accounting standards. These projects are a significant move toward achieving a common accounting framework, a necessary step in the globalization of business and investment” (PriceWaterhouseCoopers LLP, 2011). The main difference between GAAP and IFRS is that GAAP is considerably rule-based, whereas IFRS is more principal-based which means IFRS has room for interpretation. The specific differences are far too many to cover in a short presentation, however, an explanation of some major differences are mentioned below.
INCOME STATEMENT
While each framework requires prominent presentation of an income statement as a primary statement, there are some major differences in the way items are handled. The three main differences that this writer noticed are the actual format of the income statement, the handling of exceptional and also how extraordinary items are handled. First we will discuss the format changes. Under IFRS; there is no prescribed format
References: American Institute of Certified Public Accountants. (2011). AICPA IFRS Resources. Retrieved November 26, 2011, from IFRS: http://www.ifrs.com PriceWaterhouseCoopers LLP. (2011). US GAAP & IFRS convergence. Retrieved November 26, 2011, from PWC: http://www.pwc.com