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GAAP VS IFRS
GAAP (US Generally Accepted Accounting Principles) is the accounting standard used in the US, while IFRS (International Financial Reporting Standards) is the accounting standard used in over 110 countries around the world. GAAP is considered a more “rules based” system of accounting, while IFRS is more “principles based.” The U.S. Securities and Exchange Commission is looking to switch to IFRS by 2015.
What follows is an overview of the differences between the accounting frameworks used by GAAP and IFRS. This is at a broad, framework level; differences in accounting treatments for individual cases may also be added as this gets updated.
Comparison chart
GAAP
IFRS
Stands for
Generally Accepted Accounting Principles
International Financial Reporting Standards
Introduction
Standard guidelines and structure for typical financial accounting.
Universal financial reporting 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 liabilities, gains, losses, comprehensive income
Revenue or expenses, assets or liabilities
Required documents in financial statements
Balance sheet, income statement, statement of comprehensive income, changes in equity, cash flow statement, footnotes
Balance sheet, income statement, changes in equity, cash flow statement, footnotes
Inventory Estimates
Last-in, first-out; first-in, first-out; or weighted-average cost
First-in, first-out or weighted-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.
Objectives of financial statements
In general, broad focus to provide relevant info to a wide range of stakeholders. GAAP provides separate objectives for business and non-business entities.
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 is not well-developed in the US GAAP framework.
IFRS gives prominence to underlying assumptions such as accrual and going concern.
Qualitative characteristics
Relevance, reliability, comparability and understandability. GAAP establishes a hierarchy of these characteristics. Relevance and reliability are primary qualities. Comparability is secondary. Understandability is treated as a user-specific quality.
Relevance, reliability, comparability and understandability. The IASB framework (IFRS) states that its decision cannot be based upon specific circumstances of individual users.
Definition of an asset
The US GAAP framework defines an asset as a future economic benefit.
The IFRS framework defines an asset as a resource from which future economic benefit will flow to the company.


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