¶ … U.S. GAAP and IFRS
There two general approaches to accounting in the world: Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). In the United States, GAAP is the standard approach, and the standard American system is referred to as U.S. GAAP. However, the Security and Exchange Commission is looking to switch to IFRS by 2015, the system used in the European Union and many other countries (Loque, 2013). In fact, the United States has been moving towards IFRS for a number of years. This long period of convergence has provided an opportunity for reconciliation of the main differences between the two systems. However, there remains at least one significant difference: "U.S. GAAP is rule-based, whereas IFRS is principle-based. The inherent characteristic of a principles-based framework is the potential of different interpretations for similar transactions. This situation implies second-guessing and creates uncertainty and requires extensive disclosures in the financial statements" (Forgeas, 2008). This paper will explore three of the differences between U.S. GAAP and IFRS and discuss the implications of those differences.
One of the differences between the two systems is when the systems become applicable. "Retrospective application of all U.S. GAAP, effective at the reporting date, is required for a company's first U.S. GAAP financial statements" (Romeo, 2008). IFRS's retrospective application requirements are more difficult to understand, but appear to be less rigid. "Retrospective application of all IFRSs, effective at the reporting date is required for an entity's first IFRS financial statements, with some optional exemptions and limited mandatory exceptions" (Romeo, 2008). These exceptions...
In other words, with respect to the dilemma between IFRS and U.S. GAAP, the view provided by the article is that recent changes have actually manifested a far more intensive process of oversight in the latter than is proposed by the former. To the point, Ramanna & Cheng report that "despite the attempts at convergence, as of 2005, significant differences between U.S. GAAP and IFRS remained. The differences were due
" IFRS has an entirely different approach, focusing on objectives, and also encourages the use of "illustrative examples relating to specific events and transactions." The GAAP system is therefore significantly more robust. There are also differences between the systems with respect to the valuation of inventories, where GAAP permits LIFO and IFRS does not. IFRS also insists that "all inventories having a similar nature" are valued using the same formula, something
The impact of these changes will be far-reaching. Those engaged in the financial sector will feel that greatest impact. However, the impact of these changes will be felt by everyone, including the American public. They will feel the changes by greater transparency and the ability to compare financial statements with greater equitability. It is expected that the IFRS will increase public trust in the financial statements of companies. Much of
IFRS Human Resource Accounting The United States has a radically different accounting system than virtually every other the countries considered. The United States has their own system known as the general accepted accounting principles (GAAP). Other countries have used this system in the past, such as the UK and Germany, but there has been an international standard that has developed over the course of the last few years and virtually every other
However, financial reporting as a system has its limits. It cannot stabilize the world economy, save the environment and help investors understand the financial condition of a company all at once. On a theoretical level, the people guiding the development and improvement of IFRS need to take this reality into consideration. Transparency is most certainly a role of IFRS, arguably the most important one. The more difficult IFRS makes fraud,
Segmental Information In general, IFRS 8 Operating Segments place a requirement on specific classes of entities (particularly those entities that have publicly traded securities) to disclose information concerning their respective operating segments, products and services, the geographical areas in which they compete as well as their major customers (IFRS 8 Operating Segments, 2014). The information that is provided by corporations pursuant to these requirements is based on internal management reports concerning
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