Differences Between Gaap and Ifrs
Differences Between GAAP and IFRS
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) are working together to eliminate a variety of difference between the United States generally accepted accounting procedures (U.S. GAAP or GAAP) and International Financial Reporting Standards (IFRS). This convergence project grew out of an agreement reached by the two boards in 2002 (Deloitte, 2004).
On February 24, the SEC unanimously agreed to publish a statement of continued support for a single set of high-quality global accounting standards. The SEC acknowledged that IFRS is best positioned to be the global standard. Even without a set conversion timeline from the SEC, IFRS has been affecting U.S. companies for some time through business dealings with non-U.S. customers and vendors, along with the use of IFRS for statutory purposes by some non-U.S. subsidiaries (Baker, 2008). Now, U.S. companies will experience an unprecedented change in accounting standards as key aspects of U.S. GAAP and IFRS converge.
One fundamental difference between the two systems will affect all companies. While GAAP includes detailed rules backed up by application guidance or rules based, IFRS is principles based and open to interpretation (Jamal & Hun-Ton, 2010). As a result, companies don’t just have to change accounting policies; they have to think about accounting and the controls in place around financial reporting in a very different way (Gornik-Tomaszewski & Showerman, 2010). This is new to people who have worked in the accounting field for years and it fundamentally changes the way they do their jobs. U.S. accountants have always been told that there is a rule somewhere, and they just need to find it. Now there are principles instead, which mean they have to make a judgment. All of these factors can make a transition to IFRS a tortuous project.
To get a true scope of the accounting changes that the FASB / IASB convergence agenda and
The International Accounting Standards Board (IASB) and the Financial Accounting Standards Board (FASB) are working together to eliminate a variety of difference between the United States generally accepted accounting procedures (U.S. GAAP or GAAP) and International Financial Reporting Standards (IFRS). This convergence project grew out of an agreement reached by the two boards in 2002 (Deloitte, 2004).
On February 24, the SEC unanimously agreed to publish a statement of continued support for a single set of high-quality global accounting standards. The SEC acknowledged that IFRS is best positioned to be the global standard. Even without a set conversion timeline from the SEC, IFRS has been affecting U.S. companies for some time through business dealings with non-U.S. customers and vendors, along with the use of IFRS for statutory purposes by some non-U.S. subsidiaries (Baker, 2008). Now, U.S. companies will experience an unprecedented change in accounting standards as key aspects of U.S. GAAP and IFRS converge.
One fundamental difference between the two systems will affect all companies. While GAAP includes detailed rules backed up by application guidance or rules based, IFRS is principles based and open to interpretation (Jamal & Hun-Ton, 2010). As a result, companies don’t just have to change accounting policies; they have to think about accounting and the controls in place around financial reporting in a very different way (Gornik-Tomaszewski & Showerman, 2010). This is new to people who have worked in the accounting field for years and it fundamentally changes the way they do their jobs. U.S. accountants have always been told that there is a rule somewhere, and they just need to find it. Now there are principles instead, which mean they have to make a judgment. All of these factors can make a transition to IFRS a tortuous project.
To get a true scope of the accounting changes that the FASB / IASB convergence agenda and
References: Baker, N. (2008). Getting up to speed with IFRS. Internal Auditor. 65(5), 32-37. Retrieved from http://search.ebscohost.com/login,aspx?direct=true&db=buh&AN=52570718&site=ehost-live&scope=site. Deloitte. (2004). IAS Plus: Key differences between IFRS and US GAAP. New York City, NY. Gornik-Tomaszewski, S., & Showerman, S. (2010). IFRS in the United States: Challenges and Opportunities. Review of Business, 30(2), 59-71. Jamal, K. & Hun-Tong, T. (2010). Joint effects of principles-based versus rules-based standards and auditor type in constraining financial managers’ aggressive reporting. Accounting Review, 85(4), 1325-1346. doi:10.2308/accr.2010.85.4.1325. Shinn, S. (2009). Ready or not, here comes IFRS. BizEd, 8(4), 44-50. Retrieved from http://search.ebscohost.com/login,aspx?direct=true&db=aph&AN=43381157&site=ehost-live&scope=site.