Free Comparison Of IFRS To GAAP Essay Sample

Financial accounting principles are relevant rules that govern the financial aspect of the bookkeeping in all entities in the world. The main financial accounting principles, however, are of two types: the International Financial Reporting Standards (IFRS) and the US General Accepted Accounting Principles (GAAP). IFRS refer to international standards that govern the accounts of companies all over the world as a result of trading activities taking place between countries from different continents and regions. On the other hand, GAAP involves rules and regulations that govern the financial accounting activities of entities in the United States. These financial activities include preparation of balance sheets and income statements (Steven, 2012).
IFRS and GAAP financial guidelines differ in so many ways according to their purpose and operation. Although they all ensure that financial record keeping rules are enforced, the formatting rules are different. For instance, the format of a statement of financial position in the IFRS requires separation of current and non-current assets and liabilities with the deferred taxes included in a separate line item on the balance sheet. The minority, interests in this case, are included in equity as a separate line item. On the other hand, the balance sheets in GAAP require separation of current and non-current assets and liabilities with the deferred taxes included with them. The minority interests are also included in the debt, unlike in IFRS.
Financial reporting, which is a compulsory requirement for all entities, is described in different conceptual frameworks by these standards. The GAAP objective on the financial reporting is to provide useful information for investment and credit decisions separating those for business and non-business entities. IFRS, however, provides useful information about the performance and changes in the financial position, which help in making economic decisions for both the commercial and non-business entities. The objectives are different since these standards govern different scopes with GAAP only applying to US entities and IFRS to all the countries in the world (Kimmel, Weygand, & Kieso, 2013).
IFRS uses standard terms in describing some of its standards. These terms include the statement of financial position, which is designed to show the comparison of assets to liabilities and equity. This name is similar to the balance sheet only that it is more descriptive. Another term is the share capital Ordinary which is synonymous with common stock. This term explains the common ownership stakes in terms of the equity acquired in exchange for cash by the owners.
For the United States to adopt IFRS principles, the Securities and Exchange Commission has to consider various issues that will face the process. SEC should consider the conversion outcome of the adoption of the IFRS to the entities in the United States. This is on the basis of the willingness of the citizens to abide by the new rules apart from GAAP, which are implemented in the US. The Securities and Exchange Commission should also consider the current rules applied in the US such as the Sarbanes-Oxley Act. This will ensure that the rules do not collide. Additionally, the investment companies such as the smaller reporting companies should be considered in their conversion process. SEC proposed however that they should not be allowed to adopt voluntarily.
Revenue recognition is another aspect that involves IFRS and GAAP although the rules are different (Irene & Nicola, 2010). During the sale of goods, revenue is recognized after the delivery of products and risks and rewards are transferred from the seller to the buyer in GAAP. Under IFRS, the risks and rewards are transferred to the purchaser before the vendor recognizes revenue. In IFRS, the accounting principles view all receivables as a financial agreement while in GAAP they are not viewed as commercial transactions.
Generally, IFRS expresses revenue as the economic benefits achieved from the ordinary operating activities. Therefore, it does not include gains and losses as part of the income since they are not in any way associated with the operating activities. However, on the financial statements, gains and losses are classified separately to show their effect on the operational performance. In this case, they do not have any impact on the operational performance and therefore giving a better understanding of users of financial statements (Steven, 2012).
In conclusion, the IFRS and GAAP rules and regulations have provided a platform for entities to carry out their financial activities from all regions. With their differences in objectives and purpose, however, the implications of these rules may be challenging especially in the United States. However, the Securities and Exchange Commission also plays a big role in ensuring the implementation of these standards by the entities regardless of the country involved. This is because it is the body that oversees all the reports forwarded with regards to both IFRS and GAAP.

References

Irene, M & Nicola, M. (2010). IFRS Primer International GAAP Basics. Hoboken, NJ: John
Wiley & Sons Publishers.
Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. (2013). Financial Accounting: Tools for decision-making (7th ed.). Hoboken, NJ: John Wiley & Sons.
Steven, E. (2012). IFRS and GAAP: A Comprehensive Comparison. Hoboken, NJ: John Wiley &
Sons Publishers.