Differences between IRFS VS GAAP

• Accounting & Bookkeeping
• ||
• July 27, 2021

The standards that control financial reporting and accounting differ from country to country. In the United States, financial reporting executions are set away by the Financial Accounting Standards Board (FASB) and arranged within the framework of the generally accepted accounting principles (GAAP).

The GAAP and IFRS are technically classified as generally accepted accounting principles in the financial and accounting world and are commonly known as GAAP.

GAAP
GAAP is a set of principles that companies in the United States must pursue when arranging their annual financial statements. The measures take a reliable approach to the accounting process so that there will be minimal or no opposition in the financial statements submitted by public companies to the U.S. Securities and Exchange Commission (SEC). It permits investors to make cross-comparisons of financial statements of various publicly traded companies to make an educated decision regarding investments.

GAAP is a broad framework or structure used to prepare the company’s financial statements like Java, C++, and HTML are used by software engineers to write down computer programs. An accountant will use different reporting languages in other jurisdictions because every country has a different GAAP. For example, for the preparation of books of account, India follows Indian GAAP. In the United States, they use US GAAP, and In United Kingdom, they use UK GAAP, and other countries use IFRS.

So why they use different GAAP or why accountant in other jurisdiction uses foreign reporting language or GAAP, well different GAAP is used because a different set of laws governs every country.

IFRS
IFRS is to maintain constancy and transparency throughout the financial world. IFRS enables the ability to see what has been happening with a company and permits businesses and individual investors to make educated financial decisions.

IFRS is standard in the European Union (E.U.) and many countries in Asia and South America but will continue analyzing a proposal to permit IFRS information to complement U.S. financial filings. Countries that benefit the most from the standards conduct a lot of international business and investing.

Key differences
The following are some of how IFRS and GAAP differ:

• GAAP is also known as generally accepted accounting principles, which is the accounting framework used in the United States of America. IFRS is also known as international financial reporting standards, which is the accounting framework used in the rest of the world.

• GAAP and IFRS are accounting standards. They are a set of guidelines, and one needs to follow accounting in your business. It’s not laws, but it’s a form of self-regulation where accountants have gotten together and decided what standards they’re going to follow. So when we talk about GAAP and IFRS, there are two different Accounting Standards.

• Just like GAAP and IFRS, there’s a comprehensive set of rules that everybody agrees with, but there are different interpretations of the rules under GAAP and IFRS in certain circumstances.

• US GAAP and IFRS are already very similar. So the basic accounting fundamentals are the same no matter where you’re at around the world. You have the same set of F.S. the same basic accounting processes. So there are just certain circumstances that are significantly different.

• The most important difference between US GAAP and IFRS is that US GAAP is rules-based. Whereas IFRS is principles-based, GAAP writes out all these different rules that U.S. companies have to follow, and IFRS is slightly different. IFRS focuses on the general principles and says that you’re counting needs to fit underneath these principles, allowing for much more interpretation.

• Through practical level, this means that GAAP is much longer and more detailed than IFRS, it’s a much thicker book, and the reason why GAAP is so detailed as there have been some pretty big accounting scandals in the United States, and every time there are one of these big accounting scandals. They add another rule to the GAAP rule book to ensure that no misunderstandings happen in the future. One of the most significant differences between GAAP and IFRS that has not been resolved yet is LIFO.

• LIFO stands for last in first out, which is a method of valuing your inventory. U.S companies are allowed to use LIFO whereas International companies are not allowed to use LIFO now a lot of U.S. companies use LIFO, and the reason they use LIFO is that most of the time, not all the time but most of the time using LIFO reduces your reported profit and that reduces your tax liability.

GAAP vs IFRS is the most disputable topic in accounting, where the former is described as the financial reporting method having universal applicability. At the same time, the final are the set of instructions made for financial accounting.  As an account professional or business owner, it is essential to know the variations of these accounting methods to manage your company globally and domestically successfully.

At AJSH, we assist our clients in bookkeeping, payroll, auditing, taxation, secretarial compliances, and preparation of financial statements ensuring compliance with applicable accounting standards. If you have any questions or wish to know more about IFRS vs US GAAP, kindly contact us.