Question

for the Apple Inc. company what is the differences for GAAP and IFRS?

Answer 1

IFRS is standard in the European Union (EU) and many countries in Asia and South America, but not in the United States. The Securities and Exchange Commission won't switch to International Financial Reporting Standards in the near term but will continue reviewing a proposal to allow IFRS information to supplement U.S. financial filings. Countries that benefit the most from the standards are those that conduct a lot of international business and investing.

Key Differences

The primary difference between the two systems is that GAAP is rules-based and IFRS is principle s based This disconnect manifests itself in specific details and interpretations. Basically, IFRS guidelines provide much less overall detail than GAAP. Consequently, the theoretical framework and principles of the IFRS leave more room for interpretation and may often require lengthy disclosures on financial statements. On the other hand, the consistent and intuitive principles of IFRS are more logically sound and may possibly better represent the economics of business transactions.

Perhaps the most notable specific difference between GAAP and IFRS involves their treatment of inventory. IFRS rules ban the use of last-in, first-out (LIFO) inventory accounting methods. GAAP rules allow for LIFO. Both systems allow for the first-in, first-out method (FIFO) and the weighted average-cost method. GAAP does not allow for inventory reversals, while IFRS permits them under certain conditions.

Another key difference is that GAAP requires financial statements to include a statement of comprehensive income.IFRS does not consider comprehensive income to be a major element of performance and therefore does not require it. This difference leaves some room for mixing owner and non-owner activity within IFRS-based financial statements.

KEY TAKEAWAYS

• GAAP is a common set of accepted accounting principles, standards, and procedures that companies and their accountants must follow when they compile their financial statements.
• IFRS is a set of international accounting standards, which state how particular types of transactions and other events should be reported in financial statements.
• Some accountants consider methodology to be the primary difference between the two systems; GAAP is rules-based and IFRS is principle based.

Presentation of Earnings

GAAP emphasizes smooth earning results from year to year, giving investors a view of normalized results. Taxes, for example, are reported based on statutory rates, not on what the company actually paid. They are designed to help investors understand average capital andspending and taxation for the company.

Documents

GAAP requires financial statements to include a balance sheet, income statement, statement of comprehensive income, changes in equity, cash flow statement, and footnotes. It is recommended that the balance sheet separates current and noncurrent assets and liabilities, and deferred taxes are included with assets and liabilities. Minority interests are included in liabilities as a separate line item.

IFRS requires financial statements to include a balance sheet, income statement, changes in equity, cash flow statement, and footnotes. The separation of current and noncurrent assets and liabilities is required, and deferred taxes must be shown as a separate line item on the balance sheet. Minority interests are included in equity as a separate line item.

Disclosure

Under GAAP, companies are required to disclose information about their accounting choices and their expenses in footnotes.

Intangibles

In GAAP, acquired intangible assets (like R&D and advertising costs) are recognized at fair value, while in IFRS, they are only recognized if the asset will have a future economic benefit and has a measured reliability.

Accounting for Assets

US GAAP defines an asset as a future economic benefit, while under IFRS, an asset is a resource from which economic benefit is expected to flow.

Fixed Assets

Under US GAAP, fixed assets such as property, plant and equipment are valued using the cost model i.e., the historical value of the asset less any accumulated depreciation. IFRS allows another model - the revaluation model - which is based on fair value on the date of evaluation, less any subsequent accumulated depreciation and impairment losses.