Introduction
The U.S. GAAP is a set of accounting procedures, standards, and principles, which corporations make use of when compiling their financial statements. Ideally, as a set of accounting standards and rules for reporting the financial statements, the GAAP ensures that the entire process is consistent from one corporation to another As well as transparent. All the publicly traded corporations in the U.S. must adhere to the GAAP requirements. While GAAP is used only in the United States, the IFRS are used in several countries. The IFRS are a collection of accounting standards established to offer an intercontinental framework for how the public corporations both prepare and present their financial statements. The IASB prepared these accounting standards. According to Willmore (1), both the U.S. GAAP and IFRS are the two major worldwide sets of financial reporting standards that are used by the main economies around the world. The U.S. FASB and IASB have for the past several years been cooperating with each other to attain the convergence of the IFRS and the U.S. GAAP.
The two sets of accounting standards have some key differences. The IFRS is designed for the profit-oriented entities to use to compile their financial statements. Nonetheless, Santoro & Bielstein (6) maintain that unlike the IFRS, the U.S. GAAP is designed for both the not-for-profit entities and profit-oriented entities to use, with extra codification topics. The required financial statement documents under the IFRS include the cash flow statement, income statement, footnotes, changes in equity, and the balance sheet. The required financial statement documents under the GAAP include the income statement, cash flow statement, footnotes, balance sheet, changes in equity, and the statement of comprehensive income.
The U.S. GAAP and the IFRS also differ in the costing methods. Under the GAAP, the acceptable method is LIFO. However, the LIFO method is prohibited in the IFRS. The consistent cost formula for all similar inventories is not explicitly needed under the U.S. GAAP but under the IFRS, the same cost formula has to be applied to all the similar inventories (Ernst & Young 14). The inventory estimates also differ. Under the U.S. GAAP, the asset management and estimate methods are First-in, First-out, Last-in, First-out while under the IFRS, the methods are First-in, First-out. The inventory reversal is prohibited in the U.S. GAAP while it is allowed in the IFRS but under certain criteria.
The two frameworks also differ when it comes to the reevaluation of intangible assets and goodwill. Under the IFRS, the intangible assets might be reevaluated to fair value but on condition that an active market exists. Nevertheless, this is not the case under the GAAP. In particular, the GAAP does not permit the reevaluation of the intangible assets. The promotional and advertising spending is expensed as it occurs under the IFRS standards. However, under the GAAP standards, the direct-response advertising spending is capitalized but only if particular criteria are met (Santoro & Bielstein 36).
Lastly, the definition of an asset under the two frameworks differs. An asset is described as an upcoming economic benefit in the GAAP framework. However, in the IFRS framework, it is described as cash or an equivalent of cash from which the business entity will benefit. Under the IFRS framework, a business entity only categorizes an asset as current when that asset is mainly for trading, it intends to consume or sell it, or expects to realize it (Thornton 11). Nonetheless, in the U.S. GAAP framework, an asset is current if it is cash or other resources anticipated to be sold or realized in cash.
Works Cited
Ernst & Young. US GAAP vs. IFRS: The Basics. S.l.: Ernst & Young, 2012. Print.
Santoro, Julie. & Bielstein Mark, M. IFRS Compared to US GAAP: An overview. KPMG IFRG Limited (2014).
Thornton, Grant. "Comparison between US GAAP and International Financial Reporting Standards." (2014).
Willmore, Austin. "The Implication of US GAAP and IFRS Convergence on American Business." Bridges 9 (2015): 1.
