Professional Documents
Culture Documents
Accounting Standards
The two most influential bodies setting accounting
Introduction to GAAP
The rules and standards established by the Financial
Introduction to GAAP
GAAP vary in different locations. For example, U.S.
Introduction to IFRS
The IASB has adopted many of the IAS and retained their
names. New standards are published as IFRS.
Introduction to IFRS
IAS 3, 4, 5, and the other missing IAS have been fully
Introduction to IFRS
IFRS have been adopted by many countries, like
Balance sheet
Deferred taxes
Balance sheet
Income statement
Statement of comprehensive income*
Changes in equity
Cash flow statement
Footnotes
Prohibited
Bank overdrafts
agreements, and other non-physical valuables with a useful life greater than a year
are recognized at fair value under GAAP. However, under IFRS, intangible assets
are recognized only if they are reliable, and will have future economic value for the
company.
Inventory Reversal Write-Down: Inventory is written down when its cost
becomes higher than its net realizable value, but when economic circumstances
change, causing an increase in the value, the amount of the write-down is reversed
in future periods. This is allowed under IFRS, but is prohibited under GAAP.
Definition of Asset: GAAP defines an asset as a future economic benefit,
whereas IFRS defines it as a resource from which future economic benefits will
flow to the firm.
Revenue Recognition: GAAP is very specific about not only what can be
considered revenue, but also how it should be measured, and how timing affects
its recognition. With IFRS, the method of measurement and timing the revenue
recognition is not specific, and there is no industry-specific guidance.
in the income statement. With GAAP, they are shown below the net income.
Inventory Under IFRS, LIFO cannot be used, but GAAP, companies have
the choice between LIFO and FIFO.
Earning-per-Share* Under IFRS, the earning-per-share calculation does
not average the individual interim period calculations, whereas under GAAP
the computation averages the individual interim period incremental shares.
Development costs These costs can be capitalized under IFRS if certain
criteria are met, while it is considered as "expenses" under U.S. GAAP.
For more detailed comparisons from each subject area, please check:
http://www.iasplus.com/en-us/standards/ifrs-usgaap
costs rather than fair market value for most assets and liabilities.
Revenue Recognition Principle: requires companies to record when revenue is (1)
realized or realizable and (2) earned, not when cash is received. Also, under this principle a
company should establish an allowance for bad debt account. This way of accounting is called
accrual based accounting.
Matching Principle: Expenses have to be matched with revenues as long as it is reasonable
to do so. Expenses are recognized not when the work is performed, or when a product is
produced, but when the work or the product actually makes its contribution to revenue. Only
if no connection with revenue can be established, cost may be charged as expenses to the
current period (e.g. office salaries and other administrative expenses).
Full Disclosure Principle: Amount and kinds of information disclosed should be decided
based on trade-off analysis as a larger amount of information costs more to prepare and use.
Information disclosed should be enough to make a judgment while keeping costs reasonable.
Information is presented in the main body of financial statements, in the notes or as
supplementary information.