Question

What are Pros and cons of GAAP?

What are pros and cons of IFRS?

Answer 1

Pros and Cons of IFRS

Introduction:- International financial reporting standard are the set of accounting standard develop by international Accounting standard Board (IASB) that is becoming the global standard for the preparation of financial standard.

PROS

1) Greater Comparability

The companies uses the same standard for the preparation of FS so the financial statement can be composed Globally - Companies with subsidiary in other contribution can use one accounting language company wide.

2) More Flexibility:-

IFRS is principle based, rather than Rule Based . A principle based philosophy means the goal of each standard is to arrive at reasonable valuation the gives companies the freedom to adopt IFRS to their particular situation.

3) IFRS normally  based of fair value method , so it gives the true picture of accounts as compare to GAAP

CONS

1)Not Globally Accepted :-

Till the date only 90 countries are fully based companies that do business in that contain which do not follow IFRS difficult as same contain uses IFRS and other uses GAAP.

2)Standard Manipulation:-

IFRS is very flexibly , any method according company can use so this may lead to , profit manipulation and encourage fraud.

3)HIgher cost of Implementation:-

Implementation of IFRS is as they do not have trained staff for IFRS and other resources for the implementation of IFRS.

Pro and Cons of GAAP

Introduction:-

GAAP (Generally accepted accounting principle) is the collection of commonly adopted accounting rules and standard for financial reporting.

GAAP specification include definition of concept and principle, as well as industry specific rule.

PROS

1) GAAP Reduces the Risk of fraud as compare IFRS because it provide rules based accounting principles.

2) Not costly :- Implementation of GAAP is  less costly as compare to IFRS because it expert of GAAP easily available as compare to IFRS.

3) Recognizing transaction on based on accrual method and so record all transaction when they earned.

CONS

1) Uses historical cost - Under GAAP asset are recorded on historical cost so it do not show true picture Accounts as compare to IFRS which follow fair value concept

2) Different countries uses different GAAP principle , so the camparison between financial statement become difficult