Bookkeeping world is based on universally accepted international accounting standard which is recently replaced in the year of 2001 by IFRS popularly known as International Financial Reporting Standard. A London based independent international standard-setting body regulated by the International Accounting Standard Board.
International Accounting Standards or IAS are framed and issued by the International Accounting Standard Committee (IASC) with an objective to compare the business all around the world in an easy and uniform way. It is a standard which increases the transparency in the global trading. It is a standardized tool to check the accuracy in financial reporting and accounting system.
Benefits of International Accounting Standards:
- A globally comparable tool
- Promote transparency and accountability of financial statement.
- Enhances efficiency in the financial market
- Helpful for investors to make economic decisions
- Tells about investment opportunity and risk involved
- Helpful for better capital allocation
- Reduces reporting and regulatory cost
- Cater the companies with international operation
IFRS is very well adopted by most of the countries including the European Union, Japan, and China. Leaving the US, most of the major countries have welcomed the new universal accounting standard. The use of IFRS standard is made compulsory to 144 jurisdictions till the year 2018. Further, additional 12 jurisdictions allowed adopting this.
The US is taking the time to implement and follow the International Accounting Standards.
America’s accounting standard body (FASB) popularly known as Financial Accounting Standards Board and International Accounting Standard Board (IASB) working collaboratively to improve the US’s generally accepted accounting principles known as GAAP and IFRS. Though the project is in progress the complexity in implementing the same making it more delayed.
Yes, there is some core difference between IFRS and US GAAP. It is significant to know every detail of US GAAP and how it is similar or different from IFRS. The US investors and companies invest trillions of dollars abroad regularly.
The US security market is regulated by the Security and Exchange Commission (SEC) which follow high-quality global accounting principles and standards.
The key difference between IFRS and US GAAP:
International Financial Reporting Standards are more accurate and universally acceptable. This is used by more than 110 countries due to its principled based concept. It is considered as a measure to evaluate and compare the accounting activities. IFRS is said to be more accurate, precise and better than GAAP. Below are a few practical illustrations for understanding the difference of use of IFRS and US GAAP.
- Treatment of intangible assets:
Intangible assets are those assets which cannot be touched or seen like goodwill, advertisement cost, and research and development cost. IFRS is more principles-based so the concept behind the treatment of intangible assets differs in both the cases. GAAP consider fair value for the accusation of intangible assets where IFRS takes into account the future value of assets.
- Valuation of Inventory Cost:
IFRS follows Last in First out (LIFO) method for the valuation of Inventory while GAAP can either take LIFO or FIFO. This may create a difference in the valuation of the inventory cost. One single rule all across the globe will give a uniform result which will be more useful for comparative analysis.
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