Free Essay About Comparing IFRS To GAAP

Type of paper: Essay

Topic: Finance, Investment, Wealth, Revenue, Taxes, Preparation, Company, Uniformity

Pages: 3

Words: 825

Published: 2020/11/18

The accountants rely on the guidelines provided by the International Financial Reporting Standards and the General Accepted Accounting Principles in the preparation the financial statements of any organizations. However, the main aim of the guidelines provided is to help the accountants make concrete decisions on the preparation of the financial statements. Financial statements should be as easy as possible for general public, especially the users of the financial statements to understand (Shamrock, 2012). Therefore, their main aim is to make the preparers of the financial statements achieve uniformity in the presentation. The simplifications of the statements help the shareholders aware of the value of the money, and it also helps the investors make informed investment decisions for the different companies.
Thesis statement: an analysis of both the GAAP and the IFRS depict the guidelines provided in each of them, aim at bringing uniformity in the financial statements, but the formats recommended are different.
IFRS recommends that the presentation of the financial statements format should not follow any specific format. However, the accountants should arrange the lowly liquid assets appear the last in the assets column. However, the financial statements should start with the non-current assets first, followed by the current assets. After that, the shareholder's equity heading should appear before the presentation of the liabilities (McEwen, 2009). On the other hand, the GAAP recommends that the assets should follow the liquidity order. Therefore, the highly liquid assets appear first. However, the current assets start the column followed by the long term assets. The current liabilities start the liabilities' column, followed by the non-current liabilities. GAAP recommends that the accountants present shareholder’s equity last.
Conversely, the conceptual frameworks provided in both the GAAP and the IFRS do not differ in the financial reporting objectives (Wiecek & Young, 2010). The objectives aim at providing the true and the fair position of the companies. For this reason, the objectives demand simple and relevant data, which the financial statement users can easily understand. The information presented should be reliable to enhance the decision makers use it make informed investment decisions. For this reason, the guidelines are in agreement that the usefulness of the information provided is essential.
Nonetheless, the commonly used term under IFRS synonymous with the balance sheet is the statement of financial positions, and it outlines both the firms’ assets and the liabilities. On the other hand, ordinary share capital is synonymous with the common stock under IFRS. Nevertheless, before ruling out that U.S should adopt the IFRS, the SEC must evaluate some issues. For instance, they should consider the cost implications for the businesses because most people incline to the profits made in business. The transitioning from the use of GAAP to IFRS requires a lot of cash, for example, the employees’ training. Therefore, it should not have negative effects on the business (Shamrock, 2012). The implementation should also involve the citizenry to avoid non-compliance. It also helps them explain to then thereby understanding how it works for efficacy in the preparation of the financial statements. The adoption would also affect the accounting syllabus because U.S uses the GAAP.
Additionally, GAAP recognizes revenue on the basis of the type industry. As a result, there are different revenue principles that match the different industries. For instance, the principle used in revenue recognition in a cotton manufacturing industry is different from that from a milk production factory. Conversely, in IFRS, the preparers of the financial statements should recognize revenue only when received and has an economic significance. For this reason, the accrued revenue is only recorded when received by the company.
Under IFRS, the definitions of the revenues and expenses do not include gains and losses. The revenues refer to the proceeds received from the normal day to day activities that firms indulge into with the motive of making profits. Additionally, the gains refer to the income received either from the normal activities or other activities. Mostly, the firms anticipate the expenses due to the provision of the services or the goods. On the other hand, the expenses refer to the costs incurred in the generation of revenues. In most cases, losses are unexpected expenses (McEwen, 2009). For these reasons, IFRS uses revenue to represent all economic benefits arising from the normal activities while the expenses refer to the expenditures resulting from the normal activities.
The internal requirements by SOX have both advantages and disadvantages to the U.S competitiveness. The disadvantages include; additional expenses to the business because the requirements demanded compliance of the businesses with guidelines provided. However, SOX's advantages outweigh the disadvantages in various ways. First, the requirements reduced the number of the fraud cases in the U.S ((Wiecek & Young, 2010). Additionally, the financial system stabilized as a result of its implementation, providing uniformity in the financial statements information.
In conclusion, the GAAP and IFRS do not have major differences. However, the accountants should always maintain consistency in the preparation of the financial statements to provide uniformity. The accountants should possess the skills and comply with the accountants’ profession ethics. Therefore, the main motive both the IFRS and the GAAP are to provide the true information about the financial statements and also to outline the formats for the accountants to follow in the preparation.


Shamrock, S. E. (2012). IFRS and US GAAP: A comprehensive comparison. Hoboken, N.J: John
McEwen, R. A. (2009). Transparency in financial reporting: A concise comparison of IFRS and
US GAAP. Petersfield, Hampshire, Great Britain: Harriman House.
Wiecek, I. M., & Young, N. M. (2010). IFRS primer: International GAAP basics. Hoboken, NJ:
John Wiley & Sons.

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