Ifrs V Us Gaap Research

IFRS v US GAAP Research

Many countries are using different versions of GAAP and others utilize their own accounting standards. U.S. GAAP has been the standard for presenting financial information in the U.S. for decades. The FASB created GAAP, but the SEC holds the power to enforce the accounting rules and ban certain accounting practices if it doesn't agree with the FASB.

In our growing global economy, it is becoming crucial for accounting information to be comprehensible among various countries. IFRS (International Financial Reporting Standards) is a set of accounting standards recently developed by the IASB. The purpose of IFRS is to provide a global framework for how public companies prepare and disclose their financial statements.

The major benefits to the U.S. of adopting IFRS include comparability, market liquidity, lower cost of capital and cost savings for multinational companies. Using IFRS globally would allow companies and investors to compare accounting information without any barriers since all information would be reported on the same level. U.S. markets would also benefit from this change, as it will attract more foreign investors. Multinational companies would especially benefit from IFRS because the time and costs of reconciling multiple accounting standards would be avoided.

On the other hand, major disadvantages U.S companies will encounter in the adoption process include conversion costs, less detail and quality information as compared to GAAP, and resistance to adoption. In order to convert to IFRS a company has to make numerous changes, which will cost a company millions of dollars. Some of these costs include preparation, certification, adjusting computer systems, and training employees. Small and locally based companies will find the change problematic as they do not have customers or operations outside the U.S. and do not need to prepare IFRS financial statements. The required transition costs might outweigh the benefits and cause resistance to adoption.

We all are aware of the fact that IFRS and GAAP are two different accounting methods, so there is possibility that not all the items or accounting treatments will be covered under both methods. To explain this concept better, we present some items that are covered by U.S. GAAP but not by IFRS. First, extraordinary items are permitted under GAAP. Second, LIFO is covered as for all the inventories similar in nature same cost formula is applied under GAAP. Also, under GAAP categories of SPEs exist. GAAP allows investment funds to follow a set of industry specific accounting standards and practices. The OCBOA concept is not discussed under IFRS but is a crucial part under GAAP. To protect against financial loss, the shortcut method for interest rate swaps is not allowed under IFRS.

Under IFRS, comparative financial statements are required for investment funds. Under IFRS, revaluation is permitted.