IFRS and GAAP
While there is a global movement towards convergence of accounting standards with more countries adopting IFRS, and many companies in areas where IFRS is not mandatory choosing to adopt the standards (Hillman, Heaston, & Dodd, 2012). However, while there are many similarities between IFRS and U.S. GAAP, there are also differences, some of which have only a minimal impact, other differences are more fundamental in nature. When looking at some of the differences, it becomes apparent that while IFRS adopts a principles based approach, GAAP has more prescriptive requirements (Ernst & Young, 2013)
IFRS 2-1 the fundamental foundations of IFRS dealing with presentation of the balance sheet which reflects the position of a firm have some differences. Under IFRS firms do not have to follow any specific order for listing the items on the sheet, although there is a recommendation that reporting of assets may be better presented in reverse order of liquidity. Under GAAP there is a more specific requirement, with the standard stating that the government should be presented ranked based on their liquidity; assets such as cash which are most liquid honest first, moving down through the level of liquidity (Pwc, 2015). In addition, the equity of the shareholders is the last item to be reported on the balance sheet.
IFRS 2-2 objectives of financial accounting are more similar than different, dealing with the conceptual frameworks of financial reporting. The two frameworks both place a high level of emphasis on faithful representation and relevancy of information. However, there are some differences. For example, GAAP still incorporate the concept of conservativism, a concept which has now been omitted from the IFRS framework as the organisation is linked towards a greater level of emphasis on relevancy, transparency, and adoption of measures to encourage fair market value (Macve, 2015). The IFRS approach pays specific attention to the level of relevancy between different countries, whereas the GAAP is focused only on the U.S. environment,
IFRS 2-3 the use of the term use the term ‘financial position’ to mean the balance sheet which is found in GAAP, as the statement shows the ‘current’ position of the firm (at the time the accounts were prepared), and rather than use the term common stock, which is found in GAAP, the term ordinary share capital is used.
IFRS 3-1 has m arerms, as it increases the requirements placed on publicly…