GAAP Vs IFRS Similarities and Differences


GAAP is a generally accepted accounting principle prevalent in the United States. The International Financial Reporting Standards or IFRS are the set of standards used by many countries and international organizations (including the European Union). The two sets of accounting standards are similar, but there are also some notable differences between them.

Let's look at some key differences between GAAP and IFRS

[1] FIFO in both rules

The provisions of GAAP dictate that companies should use first-in, first-out (FIFO) and last-in, first-out (LIFO) as valid inventory methods.

Under IFRS, only the FIFO rule exists.

[2] There are different accounting standards for operating leases

The accounting standard for operating leases differs from the standard for capital leases and loans. The reason for different accounting rules is that operating leases and loans take up a company's capital, but operating lease payments don't decrease the company's outflows of cash.

Under IFRS, companies should use an accrual basis to book operating lease revenues and expenses. Companies should use an expensed basis for operating lease expenses.

Under GAAP, companies should evaluate whether revenues from operating leases (and other similar types of leases) are recognized as operating lease income or expense. Once the companies make that decision, then they should apply FIFO to expenses and income from operating leases.

[3] The geographical scope of use

IFRS has been adopted by many countries, including all of the European Union. But GAAP is prevalent mainly in the United States. So we can say that IFRS has a much wider geographical scope than GAAP.

[4] Inventory reversal

When you go for the IFRS vs US GAAP online course, you see that both principles treat inventory reversal in separate ways. Under IFRS, companies can reverse the effects of a change in the expected utility of an item that was previously written down. Under GAAP, companies can only do so if the change is caused by external factors.

IFRS also allows for the reversal of inventory in specific situations, such as when a company revises its estimate of future customer demand. But GAAP does not have such provisions.

[5] Valuation of fixed assets

Under IFRS, a company can depreciate tangible fixed assets more rapidly than it can under GAAP because the costs of fixed assets are recognized in the income statement over the estimated useful life of the specific asset.

Under GAAP, companies should use straight-line depreciation for all intangible fixed assets such as software, patents and trademarks.

When you go for the IFRS vs US GAAP online course, you see a key difference between GAAP and IFRS. Under IFRS, companies can defer recognition of an asset if it is deemed to have no useful economic life or there are uncertainties about its value.

Get your hands on the course from Syntrofia

If you want to gain proficiency in IFRS or want to know the basic principles of the US GAAP, then Syntrofia's course on US GAAP vs. IFRS will be useful. We also ensure hands-on training on everything to know about IFRS with our IFRS Crash Course.

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