General accepted accounting standards (GAAP) are acceptable framework and guidelines in accounting practice, used by professional accountants to record financial statements and position of a company. Therefore, this comprises of accounting and reporting standards, meant for both profit oriented firms and non-profit-oriented firms. On the other hand, according to (ken,2013) International Financial Reporting Standard (IFRS) is a global business language used in company circles so that their accounting documents and reporting are standardized. This, therefore, means that they are somewhat comparable across the industry, hence shareholder and stakeholders can make educated investments decision. IFRS is commonly used for profit oriented ventures and set-ups.in stack difference from the true and fair view of IFRS, GAAP presents a fair view in accordance to US GAAP standards.
In accordance to IFRS 2.1 if the business is not a going concern, while the financial statement are being prepared in accordance with the acceptable IFRS standards then there is no general dispensation from the measurement, recognition and disclosure requirement of IFRS. While in GAAP if liquidation is eminent then there is requirement for measurement, recognition and disclosure under US GAAP requirement. If a business is a going concern then the management are not limited to reporting of one year they can exceed this once they have established the financial future of the firm, while GAAP limits reporting to one year. On a light touch both standards require the auditors to disclose if the going concern in the future is not certain.
The conceptual frameworks for both have similarities and differences, for example the IFRS is a point of reference while the GAAP is not adhered to routinely and religiously. In both shareholders input s referred to as equity same to the objective and standards adopted by both are followed religiously. A close scrutiny will reveal that they both do not differ in the objective in fact their objective are somewhat similar, because they all report all the financial statement for both the separate entities and the single entities. All the reported financial statement that they report includes: statement of financial position, income statement, statement of equity, and cash flows.
Under the standard IFRS statement of financial position is referred to as balance sheet, tough their design may not be the same because they are just slightly different, the IFRS version compares assets to liabilities and equity that’s why they are referred to as statement of financial position. IFRS is a more actual representative of its purpose to firms and entity. Share capital ordinary is the term used by IFRS to represent the share ownership stakes so referred to as common stock.
SEC would have to consider whether the company is amongst the top 20 in terms of their market capitalization worldwide. The compatibility test must be done on the IFRS to determine comparability of the firms that have adopted the standards, on this thought they should also be adopted by a simple majority of the firms in the industry in order for it to pass. Sic and two-level are the standard of measure that would be used, as well as a proof that the company has prior publicly published its financial records.
Revenue in IFRS would be recognized if the economic viability especially in the future are certain and reliable, while in terms of GAAP the revenue are recognized when they occur. Revenue recognition is based on general principal that are applied to different types of transaction according to (Smith, 2002). While in GAAP revenue is recognized based on a strict guidance to revenue recognition with regards to the industry and the type of contract.in both revenue is recognized only when the risk and the management of the assets or inventory have been transferred to the counter party or buyer. Accounting for contactor contracts are based on the percentage-of -completion method. In both the definition of Revenue and expenses include gain and loss, this is because the both measure the financial performance of a firm and this word defines the performance of a firm. Their only difference is in terms of the design and format of reporting.
The pros of the SOX act is that investor have confidence in the different venture since they have control over the organizations. In fact it emphasizes the importance of control on an organization. The other pros are that not living up to their expectation is on professional persons in charge of financial reporting is severely punishable. The cons are there was not implementation guideline of this act; there still exist some irreconcilable difference between SEC and other bodies. In conclusion there is need for have a standardized universal measure for all financial entities.
Works Cited
Ken Tysiec. (2013). New Mechanisms matched by FASB and IASB in long match to international comparability: journals of financial accountability.
Smith. N J, (2002). Constant item purchasing power accounting per IFRS. Three Concept of Capital maintance, journal of cost accounting.
