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IFRS and US GAAP - Similarities and Differences

What is IFRS? And what is GAAP? The main difference between IFRS and US GAAP is that GAAP is rule-based, while IFRS is principle-based. The difference mainly lies in the methodology used to evaluate an accounting treatment. Under GAAP, the research focuses more on the literature, while under IFRS the "facts pattern" is rigorously reviewed.

IFRS GAAP Differences

Much like the transition from the US system of weights and measures to the international metric system, GAAP (Generally Accepted Accounting Principles), an accounting standard used in the US, is slowly, but surely converging with IFRS (International Financial Reporting Standards), an accounting standard used across 110 countries globally.

The US Financial Accounting Standards Board (FASB) that endorses GAAP (or US GAAP), and the International Accounting Standards Board (IASB) that defines IFRS have both been working steadily towards convergence for a few years now. The convergence process is designed to figure out the significant differences between IFRS and US GAAP that need improvement. However, some differences will still continue to exist between the two systems.

Comparison between IFRS and GAAP

The differences in the IFRS and GAAP accounting systems have a considerable impact on the financial statements, and consequently on the conduct of businesses. Some of the most common differences found in present practice are -

Key Characteristics

Relevance, reliability, comparability and understandability, are the ley characteristics in GAAP (in the exact hierarchy) where relevance and reliability are primary qualities, comparability is secondary and understandability is considered as user-specific quality


Relevance, reliability, comparability and understandability are also the key characteristics in IFRS. However, according to IASB framework (IFRS) its decision is not based upon individual users' specific circumstances

Prefers a risks-and-rewards model
Prefers a control model
LIFO or FIFO can be used
LIFO cannot be used
Statement of Income
Extraordinary items are shown below the net income
Extraordinary items not shown segregated
Required Documents in Financial Statements
Balance sheet, income statement, statement of comprehensive income, changes in equity, cash flow statement, footnotes
Balance sheet, income statement, changes in equity, cash flow statement, footnotes
Computation averages the individual interim period incremental costs
Calculation does not average the individual interim period calculations
Development Costs
Costs are considered as "expenses"
Costs can be capitalized if key criteria are met
Debt and Financial Liability
Equity instruments are treated as such
Equity instruments are treated as debt
Required Period
3 years of comparative financial information is required
Only 1 years' worth of financial information is required
Performance Elements
Assets or liabilities, comprehensive income, gains, revenue or expenses, losses
Assets or liabilities, revenue or expenses

Convergence Hiccups

Although, US is clearly moving toward IFRS, a recent SEC (United States Securities and Exchange Commission) staff report seems to suggest some ambiguity in the timeline of its implementation. The staff report does not talk about whether US public companies should have the option to move to IFRS voluntarily, but, it seems to suggest that companies should not be allowed to adopt IFRS early, because it would compromise comparability with US companies using GAAP.

Changes in Store for Companies

Regardless of whether the United States adopts IFRS in the near future or not, it would be prudent to keep in mind that significant accounting changes are on the cards for most companies. As the FASB and IASB continue to work towards finalizing accounting standards on revenue, leasing, and financial instruments, it is just a matter of time before these standards will start affecting virtually all companies, whether they report under GAAP or IFRS. Contact our financial experts to know more.

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