Finance Director at Resources Mena & Performena

IFRS is set of international accounting standards developed by IASB

(International Accounting Standards Board) under the governance of
IFRS foundation stating how the financial & accounting transactions and
other events should be reported in financial statements.

Financial Reports are the bible for investors to make investment

decisions. The financial performance of the organisation is evaluated on
the basis of financial reports. In order to analyse & compare the financial
reports of multiple entities accurately, it is extremely important that the
companies are following the same set of accounting standards while
preparing their financial reports. However due to requirements of
national economic, financial & legal systems of each countries, the
company's are required to follow the reporting standards which are
prevailing in their country of incorporation and this makes the
comparison of financial reports of companies located in different
countries ineffective.

The challenge of international capital market is to reduce or eliminate

the differences in the reporting standards, to produce a level playing
field for financial reporting and to help create more efficient
international capital markets.

Objectives of ifrs

 to develop, in the public interest, a single

set of high quality, understandable,
 enforceable and globally accepted
international financial reporting standards
(IFRS Standards) based upon clearly
articulated principles. These standards
should require high quality, transparent and
comparable information in financial
statements and other financial reporting to
help investors, other participants in the
world's capital markets and other users of
financial information make economic
decisions;
 to promote the use and rigorous application
of those standards;
 in fulfilling the objectives associated with (1)
and (2), to take account of, as appropriate,
the needs of a range of sizes and types of
entities in diverse economic settings; and
 to promote and facilitate adoption of IFRS
Standards, being the standards and
interpretations issued by the Board, through
the convergence of national accounting
standards and IFRS Standards.
International Financial Reporting Standards (IFRS) is the accounting method
that’s used in many countries across the world. It has some key differences
from the Generally Accepted Accounting Principles (GAAP) implemented in
the United States.

As an accounting professional or business owner, it’s vital to know the

variations of these accounting methods, in order to successfully manage your
company globally, as well as domestically. Here are the top 10 differences
between IFRS and GAAP accounting:

1. Locally vs. Globally

As mentioned, the IFRS is a globally accepted

standard for accounting, and is used in more
than 110 countries. On the other hand, GAAP is
exclusively used within the United States and
has a different set of rules for accounting than
most of the world. This can make it more
complicated when doing business
internationally.
2. Rules vs. Principles

A major difference between IFRS and GAAP

accounting is the methodology used to assess
the accounting process. GAAP focuses on
research and is rule-based, whereas IFRS
looks at the overall patterns and is based on
principle.
With GAAP accounting, there’s little room for
exceptions or interpretation, as all transactions
must abide by a specific set of rules. With a
principle-based accounting method, such as the
IFRS, there’s potential for different
interpretations of the same tax-related
situations.
3. Inventory Methods

Under GAAP, a company is allowed to use the Last In, First Out (LIFO)
method for inventory estimates. However, under IFRS, the LIFO method for
inventory is not allowed. The Last In, First Out valuation for inventory does not
reflect an accurate flow of inventory in most cases, and thus results in reports
of unusually low income levels.

4. Inventory Reversal
In addition to having different methods for
tracking inventory, IFRS and GAAP accounting
also differ when it comes to inventory write-
down reversals. GAAP specifies that if the
market value of the asset increases, the
amount of the write-down cannot be reversed.
Under IFRS, however, in this same situation,
the amount of the write-down can be reversed.
In other words, GAAP is overly cautious of
inventory reversal and does not reflect any
positive changes in the marketplace.
5. Development Costs
A company’s development costs can be
capitalized under IFRS, as long as certain
criteria are met. This allows a business to
leverage depreciation on fixed assets. With
GAAP, development costs must be expensed
the year they occur and are not allowed to be
capitalized.

6. Intangible Assets
When it comes to intangible assets, such as
research and development or advertising costs,
IFRS accounting really shines as a principle-
based method. It takes into account whether an
asset will have a future economic benefit as a
way of assessing the value. Intangible assets
measured under GAAP are recognized at the
fair market value and nothing more.
7. Income Statements

Under IFRS, extraordinary or unusual items are

included in the income statement and not
segregated. Meanwhile, under GAAP, they are
separated and shown below the net income
portion of the income statement.
8. Classification of Liabilities

The classification of debts under GAAP is split between current liabilities,

where a company expects to settle a debt within 12 months, and noncurrent
liabilities, which are debts that will not be repaid within 12 months. With IFRS,
there is no differentiation made between the classification of liabilities, as all
debts are considered noncurrent on the balance sheet.

9. Fixed Assets

When it comes to fixed assets, such as property, furniture and equipment,

companies using GAAP accounting must value these assets using
the cost model. The cost model takes into account the historical value of an
asset minus any accumulated depreciation. IFRS allows a different model for
fixed assets called the revaluation model, which is based on the fair value at
the current date minus any accumulated depreciation and impairment losses.

10. Quality Characteristics

Finally, one of the main differentiating factors between IFRS and GAAP is the
qualitative characteristics to how the accounting methods function. GAAP
works within a hierarchy of characteristics, such as relevance, reliability,
comparability and understandability, to make informed decisions based on
user-specific circumstances. IFRS also works with the same characteristics,
with the exception that decisions cannot be made on the specific
circumstances of an individual.

It’s important to understand these top differences between IFRS and GAAP
accounting, so that your company can accurately do business internationally.
U.S.-based companies must abide by specific accounting regulations, even if
they plan to do business internationally.

Comparison chart

GAAP versus IFRS comparison chart

GAAP IFRS
Stands for Generally Accepted Accounting International Financial Reporting
Principles Standards
 GAAP versus IFRS comparison chart

GAAP IFRS
Introduction Standard guidelines and structure Universal financial reporting
for typical financial accounting. method that allows international
businesses to understand each
other and work together.

Used in United States Over 110 countries, including

those in the European Union

Performance elements Revenue or expenses, assets or Revenue or expenses, assets or

liabilities, gains, losses, liabilities
comprehensive income

Required Balance sheet, Balance sheet,

documents in income statement, income statement,
financial statement of changes in equity,
statements comprehensive cash flow
income, changes statement,
in equity, cash footnotes
flow statement,
footnotes
Inventory Estimates Last-in, first-out; first-in, first-out; First-in, first-out or weighted-
or weighted-average cost average cost

Inventory Reversal Prohibited Permitted under certain criteria

Purpose of the framework US GAAP (or FASB) framework
has no provision that expressly
requires management to consider
the framework in the absence of a
standard or interpretation for an
issue.
Under IFRS, company
management is expressly
required to consider the
framework if there is no standard
or interpretation for an issue.
 GAAP versus IFRS comparison chart

GAAP
Objectives of financial In general, broad focus to provide
statements relevant info to a wide range of
stakeholders. GAAP provides
separate objectives for business
and non-business entities.
IFRS
In general, broad focus to provide
relevant info to a wide range of
stakeholders. IFRS provides the
same set of objectives for
business and non-business
entities.

Underlying assumptions The "going concern" assumption IFRS gives prominence to

is not well-developed in the US underlying assumptions such as
GAAP framework. accrual and going concern.

Qualitative Relevance, Relevance,

characteristics reliability, reliability,
comparability and comparability and
understandability. understandability.
GAAP establishes The IASB
a hierarchy of framework (IFRS)
these states that its
characteristics. decision cannot
Relevance and be based upon
reliability are specific
primary qualities. circumstances of
Comparability is individual users.
secondary.
Understandability
is treated as a
 GAAP versus IFRS comparison chart

GAAP IFRS

user-specific
quality.
Definition of an asset The US GAAP framework defines The IFRS framework defines an
an asset as a future economic asset as a resource from which
benefit. future economic benefit will flow
to the company.

Objectives and Features of Accounting Standards:

The objectives of IASC which are set out in its revised
agreement and constitution are:
(i) To formulate and publish in the public interest Accounting
Standards to be observed in the presentation of financial statements
and to promote their worldwide acceptance and observation.

(ii) To work for the improvement and harmonisation of regulation of

Accounting Standards and procedures relating to the presentation of
financial statements.

In regard to the objective (i) stated above, i.e. worldwide acceptance

and operation, the statement of). L. Kirkparick, Chairman of the Board
of IASC, delivered to the members of the Institute of Chartered
Accountants, Ireland, is quite significant. According to him: “When we
sit round the IASC Board table and in the steering committee which
creates the standard, we do so in our capacity as experts in Accounting
and certainly not as auditors. It is irrelevant whether we are
practitioners or not.” Therefore, the Standards which are set/issued by
ISAC are meant for universal acceptance.

1. INTRODUCTION Accounting as a ‘language of business’ communicates the financial results of an

enterprise to various stakeholders by means of financial statements. If the financial accounting process
is not properly regulated, there is possibility of financial statements being misleading, tendentious and
providing a distorted picture of the business, rather than the true state of affairs. In order to ensure
transparency, consistency, comparability, adequacy and reliability of financial reporting, it is essential to
standardise the accounting principles and policies. Accounting Standards (ASs) provide framework and
standard accounting policies so that the financial statements of different enterprises become
comparable.

2. CONCEPTS Accounting standards are written policy documents issued by expert accounting body or
by government or other regulatory body covering the aspects of recognition, treatment, measurement,
presentation and disclosure of accounting transactions and events in the financial statements. The
ostensible purpose of the standard setting bodies is to promote the dissemination of timely and useful
financial information to investors and certain other parties having an interest in the company’s
economic performance. The accounting standards deal with the issues of-

(i) recognition of events and transactions in the financial statements

; (ii) measurement of these transactions and events;

(iii) presentation of these transactions and events in the financial statements in a manner that is
meaningful and understandable to the reader; an

d (iv) the disclosure requirements which should be there to enable the public at large and the
stakeholders and the potential investors in particular, to get an insight into what these financial
statements are trying to reflect and thereby facilitating them to take prudent and informed business
decisions. © The Institute of Chartered Accountants of India FUNDAMENTALS OF ACCOUNTING 1.49 3.
OBJECTIVES The whole idea of accounting standards is centered around harmonisation of accounting
policies and practices followed by different business entities so that the diverse accounting practices
adopted for various aspects of accounting can be standardised. Accounting Standards standardise
diverse accounting policies with a view to: (i) eliminate the non-comparability of financial statements
and thereby improving the reliability of financial statements; and (ii) provide a set of standard
accounting policies, valuation norms and disclosure requirements. Accounting standards reduce the
accounting alternatives in the preparation of financial statements within the bounds of rationality,
thereby ensuring comparability of financial statements of different enterprises. 4. BENEFITS AND
LIMITATIONS Accounting standards seek to describe the accounting principles, the valuation techniques
and the methods of applying the accounting principles in the preparation and presentation of financial
statements so that they may give a true and fair view. By setting the accounting standards, the
accountant has following benefits: (i) Standards reduce to a reasonable extent or eliminate altogether
confusing variations in the accounting treatments used to prepare financial statements. (ii) There are
certain areas where important information are not statutorily required to be disclosed. Standards may
call for disclosure beyond that required by law. (iii) The application of accounting standards would, to a
limited extent, facilitate comparison of financial statements of companies situated in different parts of
the world and also of different companies situated in the same country. However, it should be noted in
this respect that differences in the institutions, traditions and legal systems from one country to another
give rise to differences in accounting standards adopted in different countries. However, there are some
limitations of setting of accounting standards: (i) Alternative solutions to certain accounting problems
may each have arguments to recommend them. Therefore, the choice between different alternative
accounting treatments may become difficult. (ii) There may be a trend towards rigidity and away from
flexibility in applying the accounting standards. (iii) Accounting standards cannot override the statute.
The standards are required to be framed within the ambit of prevailing statutes. 5. OVERVIEW OF
ACCOUNTING STANDARDS IN IN