Comparison Between IFRS and GAAP

The assignment compares IFRS (International Financial Reporting Standards) and GAAP (Generally Accepted Accounting Principles). Both methods have similar objectives in financial reporting, but differ in format, with GAAP listing accounts based on liquidity and IFRS not requiring a specific order. IFRS uses terms like 'Share Capital Ordinary' for common stock and 'Statement of Financial Position' for balance sheet. The implementation of IFRS in the US would require training and modifications to internal controls.

IFRS VS. GAAP

Introduction
In this present paper, we will discuss the comparison between IFRS and GAAP. The comparison
has been made on the basis of the format of a statement, conceptual framework, commonly used
the term of IFRS are synonyms with common stock and balance sheet, considering issues of
SEC, rules of revenue recognition, and competitive implications of SOX.
The international business increases those with the financial responsibilities that should be well
versed in the two main methods of accounting, namely, GAAP and IFRS. The GAAP is set by
the financial accounting standard board which is mainly used in the United States, and the IFRS
is used in many countries. Both the methods has shared some similarities, and some differences
are also there which results in the different style of reporting. The high understanding of both
methods is necessary to take an effective decision.
Difference in format
According to the GAAP, the accounted are listed on the basis of liquidity due to which the cash
is reported firstly as a current asset whereas the shareholder's equity is listed in the last. On the
other hand, IFRS method does not require the list of accounts on the basis of any criteria due to
which majority of company's reports in reverse order of liquidity (Sedki et al., 2014). The bottom
line is to offer the clear understanding of assets to the users of the financial statement.
Objective of financial reporting
The conceptual framework of GAAP and IFRS are same in terms of the objective in financial
reporting because both are giving similar value and financial reporting frequency. The financial

reporting should comply with the standards and norms of industry which are agreed by both the
methods. Both are providing useful information to the users, but GAAP provides information to
the investors and decision making related to credit whereas IFRS provides the information
related to the changes and financial performance of the company to the various users which help
to take economic decisions of the company. The GAAP is focusing on maintaining the standards
with the businesses of the United States whereas IFRS is focusing on maintaining the standard
with various countries (Krishnan et al., 2012).
Common term used under IFRS are synonyms with common stock
& balance sheet
The opposed term of common stock which is used by the IFRS is "Shared Capital Ordinary".
The common stock is defined as the value of equity which is acquired in return for cash. The
shared capital ordinary is mainly used in Europe, so it is selected by the IFRS as the common
term (Smith et al., 2012). The opposed of a balance sheet is "Statement of financial position"
which is used by the IFRS. It is used by the IFRS because the purpose of the statement is to
determine the financial position of the company. Whereas the formats of the balance sheet and
statement of financial position have a different format in which both compare asset to equity and
liability.
Issues considered by SEC
If the IFRS accounting method is considered by the United States, then the companies in the
United States will be highly impacted because they are familiar with the GAAP reporting
standard. The training is required for the boards and management of the company in order to

meet the expertise level which is set by NASDAQ, AMEX and NYSE. The training is also
required for auditors and accounting department for make the reports in IFRS standard. The
internal control also required to be modified in order to support the implementation of IFRS
standard. The new commitments will be implemented by the company such as dividends, dents,
compensation on the basis of performance.
Comparison of rules
GAAP has industry specific requirements in order to meet the event for revenue recognition of
the company. Under GAAP the revenue recognition can be done on accrual and cash basis. The
revenue became significant and recognised then accrual basis is used, and cash basis accounting
is done when the payment is received. The GAAP has more requirements than the IFRS, but
same rules are followed by the IFRS as well (Malone et al., 2016). The revenue can be
recognised when there is a high possibility of economic benefit, and it can be measured in the
future accurately.
Gain and loss under IFRS
The revenue is defined as the gross inflow of economic benefits which is raised from the
ordinary operating activities and it excludes non-operating gains. The gains and losses are
excluded from the part of revenue, and they are considered in the operating activities.
Competitive implications of SOX
The Sarbanes-Oxley act, 2002 was established to prevent and detect the fraud. The cost of the
internal cost is also very expensive. According to (Weygandt et al., 2013), the cost of SOX

compliance for single study for the United States companies is approximate $35 Billion with the
doubling of audit fee in the first year of compliance. It causes huge financial strain for the small
companies who are having low revenue.
If the United States adopts the implementation of IFRS, then they must consider the revenue and
size of the company in the context of the cost of internal control reviews. The standard must be
complying with every company without sacrificing the funding of the actual business. The
adoption of similar accounting standard is more efficient which helps to protect the fraud and
discrepancies in order to achieve the regulation and necessary compliances (Cefaratti et al.,
2014).
Conclusion
It can be concluded that both are having different formats and reporting style. The objective of
financial reporting is similar in both the standards. The term Share Capital Ordinary is used for
common stock and Statement of financial position for balance sheet under IFRS. The
implementation of IFRS in the United States is difficult which require training in order to meet
the expertise criteria set by NASDAQ, AMEX and NYSE.

References
Sedki, S. S., Smith, A., & Strickland, A. (2014). Differences and Similarities Between IFRS and
GAAP on Inventory, Revenue Recognition and Consolidated Financial Statements. Journal of
Accounting and Finance, 14(2), 120.
Krishnan, S. (2012). Inventory Valuation under IFRS and GAAP. Strategic Finance, 93(9), 51.
Smith, L. M. (2012). IFRS and US GAAP: Some key differences accountants should know.
Management Accounting Quarterly, 14(1), 19.
Malone, L., Tarca, A., & Wee, M. (2016). IFRS non‐GAAP earnings disclosures and fair value
measurement. Accounting & Finance, 56(1), 59-97.
Cefaratti, M., Dorminey, J. W., Lin, H., & Reed, T. (2014). Litigation Risk and Management
Reporting Choice: A Comparative Study of PSLRA and SOX. Managing Reality: Accountability
and the Miasma of Private and Public Domains (Advances in Public Interest Accounting,
Volume 16) Emerald Group Publishing Limited, 16, 65-89.