ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

GAAP vs. IFRS

Updated on November 13, 2017

Globalization has led to most countries following and teaching the accounting principles of IFRS. United States based companies follow the rules of GAAP which causes complications for United States companies that want to do business internationally. Both practices of accounting provided useful and accurate interpretations of a company’s financial situation. However comparing a financial statement that was made following GAAP to a statement that follows IFRS could lead to meaningful discrepancies.

The United States uses GAAP or Generally Accepted Accounting Principles for financial reporting. GAAP are rules that must be followed on financial statements and only are acceptable within the United States. Unlike GAAP, IFRS or International Financial Reporting Standards is principal based. This means when business transactions occur GAAP must follow a certain progression of steps to record it without variance. Whereas IFRS is able to interpret the transaction is a few different ways. Another difference with IFRS being principle based versus GAAP being rules based is you cannot find a loophole isn a principle as easily as you could a rule. Since principles are vaguer than a specific rule it covers more potential threats to unfaithful reporting. An example of this would be historical cost used in GAAP versus the “real value” used by IFRS for fixed assets. Historical cost used the price paid for the asset while “real value” uses the estimated value of the asset today. “Real value” is extremely useful for companies who invest in something for its future economic benefit.

Another United States companies face is double accounting work. For reporting and auditing financial information United States based companies are required to us GAPP which is useful when comparing financial statement to other US based companies or internally within the business for management. However for international reporting, and in more than 110 countries, International Financial Reporting Standards is used. (Bannister) The double accounting work is extensive as well. An examples would be IFRS not recognizing LIFO as an acceptable inventory system. If the cost of a product is increasing, using LIFO saves a company money because a higher cost against gross income results in less taxable income. If a company using LIFO needed to report internationally now, any financial statement involving inventory would have to be reevaluated to satisfy IFRS. (Intuit Team) This double accounting causes an additional disadvantage other than just doing more work for United States accountants as well.

Accountants who studied in the United States are taught how to satisfy GAAP when doing financial reporting and the CPA exam certify them to do that. They are not however taught to satisfy IFRS principles, so they may not being preparing the best IFRS-satisfying financial statements. This is bad for the company reporting the information because it may not be the best reporting it could be for the company. It is also detrimental to all United States taught accountants. In an ever globalizing world economy, accountants taught to satisfy only one countries accounting rules is less valuable than an accounting who can satisfy accounting principles in over 100 countries.

References

Bannister, Jazmin I. "The Effects of Globalization on Both Accounting Profession and Education." The Effects of Globalization on Both Accounting Profession and Education. 21 Apr. 2016EzineArticles.com. 5 Oct. 2017

Huff, Graham "The Impact of Globalization on Management Accounting." The Impact of Globalization on Management Accounting. 20 Nov. 2012EzineArticles.com. 5 Oct. 2017

Intuit Firm of The Future Team. “Top 10 Difference Between IFRS and GAAP.”FirmOfTheFuture, Intuit Quickbooks, 2017, www.firmofthefuture.com/content/top-10-differences-between-ifrs-and-gaap-accounting/.

Pounder, B. (2007). How Globalization is Affecting U.S. Accountants. Montvale: Institute of Management Accountants.

Comments

    0 of 8192 characters used
    Post Comment

    No comments yet.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)