Comparison between Accounting Standards - IFRS UK & GAAP USA

INTRODUCTION TO
ACCOUNTING

COMPARISON BETWEEN ACCOUNTING STANDARDS
– IFRS UK & GAAP USA
 International Financial Reporting
Standards.
 Universal business language or method
of financial reporting adopted by
companies globally.
 It is developed by International
Accounting Standard Board
(IASB).
 Based on Principles.
 Generally Accepted
Accounting Principles.
 A set of accounting
procedures.
 It is developed by Financial
Accounting Standards Board
(FASB).
 Based on Rules.
OBJECTIVES
 To establish universal language for the preparation of
financial statements.
 To establish rules for making interpretation by
stakeholders easier.
 To ensure credibility and transparency of financial
position of a concern.
 To assist companies in categorizing and reporting
financial data.
 To establish comparison of financial performance at
international level.
 To assist in disclosing financial performance accurately.
 To establish clarity in the minds of stakeholders.
 To encourage understanding of financial reporting in an
understandable manner.
 To provide financial reporting guidelines to US based
companies.
 To facilitate rational decision making by investors,
creditors and any stakeholders of US based company.
Areas of
Divergence
Financial statement Presentation
Recognition of Accounting Elements
Measurement of Accounting Elements
Disclosures and Terminology
 Both are guiding principles and assists in preparing and
presenting financial statements.
 There is a professional body by whom these accounting
standards have been issued.
 The characteristics such as relevance, transparency, reliability,
comparability and understandability ensured by both of these
accounting standards.
IFRS GAAP
Set of accounting procedures and
guidelines followed by US based
companies
Universal business language
followed by international
companies.
LIFO method is not permissible. LIFO method is permissible.
No segregation of extraordinary
items within income statement.
Extraordinary items are shown
below income statement.
Inventory reversal is permitted. Inventory reversal is not allowed.
SIMILARITIES DIFFERENCES

Definition of IFRS: It stands for International Financial Reporting Standards which adopted at
global level and is issued by International Accounting Standard Board. It is a set of guidelines &
rules which is necessary for every firm to adopt in order to make sure that their financial
statements are able to satisfy consistency with the financial statements of other firms across the
globe (Anantharaman and Chuk, 2020).
Definition of GAAP: It stands for Generally Accepted Accounting Principles. It is a standard
framework, procedures and principles that is being adopted and used by US based companies for
the purpose of financial accounting. The principles have been issued by Financial Accounting
Standard Board (Kouki, 2018). The set of accounting standards within it provides rules and
standard ways for recording & reporting of company’s financial data.
Objectives of different accounting standards i.e., IFRS & GAAP
Objectives of IFRS
There are many purposes for which IFRS has been developed such as the following:
 To introduce a common law that is to be adopted by all companies at global level to
ensure consistency and comparability within their financial statements, so that a universal
way of financial reporting can be established for all internationally operating business
(Cussatt, Huang and Pollard, 2018).
 To assist stakeholders in carrying out analysis of financial performance of the company
along with correctly interpreting a concern’s financial position.
 When IFRS is followed while preparing books of accounts, then the financial record
ensures reliability, accuracy, uniformity and appropriateness and thus there is an
availability of high quality financial data on the basis of which investors make informed
economic decisions.
Objectives of GAAP
The purpose for which GAAP has been developed are as follows:
 To promote the understanding of how financial reporting can be done in transparent
manner (Kouki, 2018).