Difference Between GAAP and IFRS
Assuming you love to account, you may already be well informed about the power struggle between IFRS and GAAP. You just need to appreciate the fact that, the concepts of these terms have remained an intriguing area for many experts. Some people like to argue about which one is better than the other. So, what is the difference between GAAP and IFRS? Please don’t hurry yourself, just read ahead to see how everything has been simplified to your understanding.
At first, there was chaos everywhere. It happened because, the language varied in accordance with geographical laws. This non-standardized system created disparities in documents prepared by organizations which operate in multiple locations.
Experts solved the problem by putting heads together to found IFRS. It would stand as a world-wide manual. However, U.S.A decided to stick to its GAAP. Speculations suggest it is uneconomical for America to migrate to IFRS. For now, a tug of war has tied us up; the difference between GAAP and IFRS prevails. Our aim targets the difference between US GAAP and IFRS.
Definition of GAAP
Simply put, it talks about U.S.A accounting rules. Accordingly, all external dealings shouldn’t violate the laws. Stock providers are no exceptions to GAAP. The SEC monitors all institutions to ensure conformity to the rules.
Due to millions of money-related scandals that rock USA, updates are introduced to fix loopholes, so as to protect the resources of investors. The continuous updates have enlarged GAP into a monstrous guideline. In fact, we are talking about a fat book.
Definition of IFRS
The simplest explanation – a world-wide body of principles. They ensure uniformity. Excluding U.S.A, over a hundred and ten nations currently use this guideline. In a matter of minutes, the differences between US GAAP and IFRS will soon hit your face.
If you still can’t figure out the concept, see IFRS to be an equivalent of scientific IUPAC system. IUPAC guides world scientists in naming chemical substances.
GAAP vs IFRS Comparison Table
The table here simplifies the differences between IFRS and GAAP.
|Basis of Comparison||IFRS||GAAP|
|Places used||Used internationally||Used in only U.S.A|
|Inventory methods||Allows only FIFO||Allows LIFO or FIFO|
|Inventory Reversal||It conditionally allows future reversals||Prohibits future reversals|
Conclusion of the Main Difference Between GAAP vs IFRS
When you carefully examine the concepts, GAAP and IFRS differences can be summarized as this: IFRS is seen as a principle-intensive guideline. It is used everywhere, except in US. When you consider GAAP, you will understand that it is solely observed by Americans. It is only a matter of time before they will merge into a stronger directive. We sit in suspense, but similarities between GAAP and IFRS cannot be ruled out. After all, balance sheets unite them in truth.
IFRS has a vast interpretational depth. The differences between GAAP and IFRS will continue hover as a controversial issue until US dives into IFRS. However, judging the home-based advantages of GAAP, experts think that the chances of the merger are very low. Therefore, the difference between IFRS and GAAP lingers on.