MGMT 600: GAAP vs. IFRS - Accounting Standards Comparison Report

This report provides a comprehensive comparison of Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). It begins with a background on international accounting standards and then details the key differences between GAAP and IFRS, covering aspects such as measurement bases, presentation requirements, and specific accounting treatments. The report includes examples of companies applying these standards, such as Wesfarmers (IFRS) and Tesco (GAAP), illustrating how these standards affect financial reporting. It also discusses how accounting standards influence the transparency, consistency, reliability, and comparability of financial statements, which are crucial for investors and creditors. The report emphasizes the importance of accounting standards in ensuring accurate and fair financial reporting, making them essential for making informed investment decisions. The report concludes with a reference section that lists the sources used to compile the document.

Running Head: Accounting
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Management Accounting
7/12/2019

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Contents
Background on international accounting standards.........................................................................2
Different accounting standards........................................................................................................2
Differences between GAAP and IFRS............................................................................................3
Examples of different standard........................................................................................................4
How they could affect financial reporting.......................................................................................5
Reference.........................................................................................................................................6

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Background on international accounting standards
The committee of the international accounting standards has the headquartered in the London
whose main objective is to develop the accounting standards and to observe the financial
statements of the company that whether they are properly audited or not. The committee came
into the existence on 29th June 1973 and the formation of the constitution has been done with the
sign of the 9 nations (Van der Meulen, 130). International accounting standards have the
responsibility to keep the exposures from time to tome and to inform their member bodies about
the latest standards and development. The key motive of the international accounting standard is
to advance the regulations of the accounting standards and to formulate the accounting standards
in the public interest. But now these accounting standards are replaced by the International
Financial Reporting Standards in 2001.
Different accounting standards
There were 31 accounting standards are there, earlier it was 32 but due to the merger of the AS
26 and AS 8 there were 31 accounting standards (Burnett, et al., 224). There were two major
accounting standards which are majorly considered which are GAAP and IFRS. GAAP or
Generally Accepted Accounting Principles is generally applicable in the US in which the rules,
standards, conventions, procedures are accepted in the community. Generally, every country has
own GAAP and owns an accounting standard. IFRS or Independent Financial Reporting
Standards are the independent standard organization which has been adopted by many countries.
The new IFRS is contained by the IAS which was retained as per the time. These accounting
standards are the basic policy documents which ensure the consistency, transparency, reliability,
and comparability of the financial statements.
Inventory valuation is also the accounting standard which is associated with the cost and
represent at the close of the accounting era. Valuation of the inventory is also the accounting
standard which is generally applicable to all the companies. In this accounting standard, a
different method of the inventory is adopted which has an impact on the assets and the revenues
of the company. As per the accounting standard of full disclosure, the material delivered by the

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company should be appropriate so that a proper decision can be taken. The required information
should be given so that the investors can make the relevant decisions in regards to the investment
(Sedki et al., 120). As per the accounting standards of the cash flow statements any historical
changes in the cash and cash equivalents should be present in this statement during the period of
time.
Differences between GAAP and IFRS
GAAP IFRS
GAAP is the accounting standards which are
created on the guidelines and rules.
IFRS is the accounting standard which is
created on the values and principles.
Under the US GAAP, certain assets such as
property, investment, plant, intangible assets,
provisions are not measured at reasonable
value and the remaining assets and liabilities
are measured at the fair value.
In this, the accounting basis is done on the
initial recognition of the asset which is based
on the reasonable value and not the historical
value of the asset and liability (Barth, et al.,
79).
In this, there is no such entity is required to be
presented while signifying the combined
financial statements.
In this, at least one subsidiary has to be
presented while signifying the combined
financial statements.
In this also there are no requirements contains
to present the balance sheet but the regulation
of the SEC if followed for the proper format
and the certain minimum line.
In this there is no prescribed format is required
to present the balance sheet but certain items
are presented on its face.
The comparative information is not required in
this but as per the registrants of the SEC, the
balance sheet of the current and the prior
period has to represent (Bamber and Kevin,
64).
In IFRS accounting standard, for the preceding
one year, only the comparative information is
required.
In the accounting standards of the GAAP, the
deferred taxes are shown in within the assets
and liabilities.
In the accounting standards of the IFRS, the
deferred taxes are contained on the balance
sheet as the distinct line item.
The minority interests of the companies are The minority interests of the companies are

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included as the distinct line item in the liability
by the significant and not majority investors.
encompassed as a separate line item in the
equity by the significant and not majority
investors.
The bank overdrafts are generally accused as a
financing activity.
The bank overdrafts may be included in cash if
they are used in cash management.
In this accounting standard, it does not allow
the inventory reversals.
In these accounting standards, it permits the
inventory reversals under some conditions
(Evans, et al., 1882).
Examples of different standard
IFRS: Wesfarmers Company adopts IFRS accounting standards. The financial statements of the
IFRS are so relevant for the investors and the creditors that they can easily take the decision
regarding the investment. The financial statements of the company are made by the users and
they represent the faithful accounting (Horton, et al., 392). As per the standards of the IFRS, the
financial accounting represents by the company Wesfarmers are complete and free from the bias
and error. The financial accounts of the company are easily explicable and equivalent across the
international boundaries and they are presented in the global language is the business affairs of
the company are easily accountable.
GAAP: Tesco Company adopts the GAAP accounting standard. The financial statements of the
company as per the accounting standards of the GAAP are relevant, reliable, comparable and
understanding. As per the accounting standards the company does not omit or misstated any
financial statements and these statements are prepared timely (Glover, 22). The comparison of
these statements is done yearly with the last year data so that the financial performance is
analyzed. The Tesco Company also provides the notes to accompany the financial statements so
that the level of understanding in the reports can be maintained. The information provided by the
company is very verifiable and objective and it is free from the error and the bias.

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How they could affect financial reporting
The accounting standards have a great influence on the financial reporting of the company.
Accounting standards are the policy documents so their main aim is to give the transparency,
consistency, reliability, and comparability of the financial statements. The data of the financial
statements are collected from the primary or the secondary resources if any change adopted in
the accounting standards also impact the change in the financial statements (Ijeoma, 3000). The
companies which do not adopt the accounting standards has to face, any problem as there were
many errors and omissions has seen. But when these accounting standards are adopted then the
financial reporting are giving are reliable by the investors and the creditors. They can trust that
the financial statements which are presented by the company should be free from any
misstatement and reflecting the true and fair report.
The companies which are adopting the IFRS have transparent, consistent and comparable
financial statements around the world. The common rules issues in the financial statements by
the International Accounting Standards Board (Müller, 979). The companies which are adopting
the GAAP has good financial reporting conditions as the company provides the reports of many
things such as the cash flows, financial conditions, profit-making operations, etc. Accounting
standards affect financial reporting in a good manner as they make the reports more complex and
legal and shows the true and fair financial position.

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Reference
Bamber, Matthew, and Kevin McMeeking. "An examination of international accounting
standard-setting due process and the implications for legitimacy." The British Accounting
Review48.1 (2016): 59-73.
Barth, Mary E., et al. "Are IFRS-based and US GAAP-based accounting amounts
comparable?." Journal of Accounting and Economics 54.1 (2012): 68-93.
Burnett, Brian M., et al. "Earnings quality: Evidence from Canadian firms' choice between IFRS
and US GAAP." Accounting Perspectives 14.3 (2015): 212-249.
Evans, Mark E., et al. "Reporting regulatory environments and earnings management: US and
non-US firms using US GAAP or IFRS." The Accounting Review 90.5 (2014): 1969-1994.
Glover, Jonathan. "Have academic accountants and financial accounting standard setters traded
places?." Accounting, Economics and Law Account. Econ. Law 4.1 (2014): 17-26.
Horton, Joanne, George Serafeim, and Ioanna Serafeim. "Does mandatory IFRS adoption
improve the information environment?." Contemporary accounting research 30.1 (2013): 388-
423.
Ijeoma, N. B. "The impact of international public sector accounting standard (IPSAS) on
reliability, credibility, and integrity of financial reporting in state government administration in
Nigeria." International Journal of Technology Enhancements and Emerging Engineering
Research 2.3 (2014): 2347-4289.
Müller, Victor-Octavian. "The impact of IFRS adoption on the quality of consolidated financial
reporting." Procedia-Social and Behavioral Sciences 109 (2014): 976-982.
Sedki, S. Sam, Abby Smith, and Aissa Strickland. "Differences and similarities between IFRS
and GAAP on inventory, revenue recognition, and consolidated financial statements." Journal of
Accounting and Finance 14.2 (2014): 120.

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Van der Meulen, Sofie, Ann Gaeremynck, and Marleen Willekens. "Attribute differences
between US GAAP and IFRS earnings: An exploratory study." The International Journal of
Accounting 42.2 (2010): 123-142.