Question

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1) What is the main differences between Gaap and IFRS.

Answer 1

The main differences between IFRS and GAAP are:

• Rule bases vs principles based – IFRS is a principles based accounting standard while GAAP is a rule based standard. Rule based standard means that as per GAAP a list of detailed rules must be followed when preparing the financial statements. So under GAAP companies and their accountants have to adhere to rules while compiling the financial statements. IFRS, on the other hand, is principles based standard and as per it the underlying notion is that a company’s financial statements must be readable, understandable, comparable and relevant to current financial transactions. Thus IFRS has a broader set of guidelines than GAAP and IFRS’s guidelines are practical for a variety of circumstances.
• Local vs global – IFRS is global while GAAP is local. It should be noted that IFRS is used widely in more than 110 countries while GAAP is primarily being used in USA.
• Inventory methods – IFRS does not allow the LIFO (last in first out) method for inventory valuation. On the other hand GAAP allows the use of LIFO method for inventory valuation purposes.
• Methodology used to assess an accounting treatment – In case of GAAP the accounting research is highly focused on the literature whereas in case of IFRS the focus is more on review of the facts pattern.
• Other accounting treatment – For instance development costs can be capitalized under IFRS when certain criteria are met while GAAP considers development costs as expenses. With regards to EPS (earnings per share) IFRS’s computation does not average the individual interim period calculations. However in case of GAAP the computation of EPS averages the individual interim period incremental shares.