Essay On GAAP Versus IFRS

The United States Generally accepted standards (GAAP) and International Financial Reporting Standards (IFRS) are the two universal used financial standards and principles of accounting. The two accounting standards are more similar than they are different , this is the reason for the two having the capability of giving the same financial results. However, the difference is based on specification of accounting factors, including transaction details and entity, interpretation of the IFRS as it is more general, industrial and financial policy practices. The difference between the two accounting standards are developed on the weighting scale of the reasons companies prefer and switch in and out of the two standards.
One of the difference is on the presentation of financial statements. The layout of the income statement and balance sheet, as for GAAP it has no requirement for a standard for the preparation of these statements but companies are required to provide the necessary details in Regulation S-X. IFRS also lacks prescribed layout but include a less eloquent line items than in regulation S-X. Debt as it is presented in the balance sheet as current and non-current brings another difference between the two standards.
In GAAP, debt having a covenant violation has the possibility of being presented as non-current asset on a condition that the lender’s agrees to give up for yearly payment comes before the financial statements are prepared. Under IFRS debts having association with violation of a debt agreement have got to be presented as a current asset except when prior to the balance sheet preparation date, the lender's agreement had been arrived at.
On the revelation of performance measures, GAAP does not dictate on a specialty in reporting different performance measures. On the hand, IFRS does not define some of common accounting concepts like operating profit thus has diversity in dictation of line items for instance subtotals and headings. IFRS unlike GAAP has no restriction on the number of line items as long as such line items are of importance to the interpretation and understanding of financial performance of an entity.
Third balance sheet is a requirement under the IFRS when introspection of the new policy is underway, this balance sheet is then prepared at the earliest comparative period of the beginning of the accounting period. This differs from the GAAP where such a balance sheet is not recognized and thus not needed in cases of accounting policy implementation and retrospection of changes in accounting policies that significantly affect entity’s balance sheet.
Interim treatment of certain costs does differ between the two standards. For instance, as to the GAAP each interim period is considered as an integral component of the financial period. Due to this, various costs that are accounted for more than two successive periods can be distributed to such periods giving rise to accrue or deferred costs. As for IFRS each interim period is a discrete financial period. At the end of the interim period, any cost that does not qualify to be an asset cannot be deferred. Any liability that its existence is made clear in the reporting must be taken into account as an existing responsibility of the entity to the requirements of the creditor as per the existing covenant. Taxes are the only liabilities that are accounted for similar to the US GAAP on the yearly effective rate of tax.