GAAP vs.

IFRS
The U.S. market is increasingly going global with capital providers from other countries, and
also because of many investment opportunities abroad. There is a need for one set of
accounting standards for all the companies in this growing global economy. One set of
standards would allow companies and individuals to compare financial statements of
companies located all over the world. There are two main sets of accounting standards

• There is US G.A.A.P. the acronym for the (generally accepted accounting principles),
and

• IFRS an acronym for (international financial reporting standards). IFRS is the

accounting standard in over 100 countries globally.

To help US companies enter the global market, the SEC has to decide to adopt IFRS or to
converge GAAP and IFRS. Let’s see some of these similarities and differences.

SIMILARITIES

1. Under both standards a complete set of financial statements include a balance sheet,
an income statement and some sort of statement pertain to non operating incomes and
expenses.

2. When preparing these statements, both GAAP and IFRS require them prepared in the
accrual basis as opposed to the cash basis.

3. Both GAAP and IFRS require companies use the same policies of accounting that
they did in the prior year, un less they disclose in their statement any new policies.
Also companies are not required to prepare interim reports.

4. When dealing with inventory both IFRS and GAPP use cost as the basic accounting
principal. Both standards have the same definition for inventory also.

5. Both standards allow different cost method approach like standard cost method and
retail method.

6. Also under both standards costs of inventory includes direst materials, direct labor,
and overhead, while selling costs and general administrative costs are not included.
DIFFERENCES

1. With US GAAP the last in first out or "LIFO" method is an acceptable method, under
IFRS it is not. Under IFRS the same cost formula must be applied

2. Under GAAP inventories can't be written-down, under IFRS inventories are allowed
to be written down under pre-determined circumstances.

3. With GAAP inventory is valued at lower cost or market cost. While under IFRS
inventory can also be carried at lower of cost, or it can be priced at net realizable cost.

4. In GAAP we can show the % of completed work and recognise its revenue for
showing in our financial statement. In IFRS uses only revenue approach of % of
completion method but it does not use the gross profit approach of % completion
method.

5. GAAP accepts the money as revenue when total services are provided and contract of
services is completed. But IFRS allows showing the revenue even some part of
services are pending.