Difference Between GAAP and IFRS

IFRS Vs GAAP is the most debatable topic in accounting where the former is defined as the financial reporting method having universal applicability while the latter are the set of guidelines made for financial accounting. Since past few years, IFRS has gained significant importance, due to which over hundred countries of the world have adopted IFRS as the standard for accounting. The issuing organizations of the two are continuously working on their convergence.

IFRS or otherwise known as International Financial Reporting Standard implies a principle-based set of standards. On the other hand Generally Accepted Accounting Principles (GAAP) is the assemblage of rules, conventions, and procedures, that explains the accepted accounting practice. There is only a few difference between IFRS and GAAP, which are discussed in this article except in detail.

Content: GAAP VS IFRS

1. Comparison Chart
2. Definition
3. Key Differences
4. Similarities
5. Conclusion

Comparison Chart

Basis for Comparison	GAAP	IFRS
Acronym	Generally Accepted Accounting Principles	International Financial Reporting Standard
Meaning	A set of accounting guidelines and procedures, used by the companies to prepare their financial statements is known as GAAP.	IFRS is the universal business language followed by the companies while reporting financial statements.
Developed by	Financial Accounting Standard Board (FASB).	International Accounting Standard Board (IASB).
Based on	Rules	Principles
Inventory valuation	FIFO, LIFO and Weighted Average Method.	FIFO and Weighted Average Method.
Extraordinary items	Shown below.	Not segregated in the income statement.
Development cost	Treated as an expense	Capitalized, only if certain conditions are satisfied.
Reversal of Inventory	Prohibited	Permissible, if specified conditions are met.

Definition of GAAP

Generally Accepted Accounting Principles or GAAP refers to the standard framework, principles and procedures used by the companies for financial accounting. The principles are issued by Financial Accounting Standard Board (FASB). It is a set of accounting standards that consist of standard ways and rules for recording and reporting of the financial data i.e. balance sheet, income statement, cash flow statement, etc. The framework is adopted by publicly traded companies and a maximum number of private companies in the United States.

GAAP principles are updated at periodical intervals to meet with current financial requirements. It ensures the transparency and consistency of the financial statement. The information provided as per GAAP by the financial statement is helpful to the economic decision makers such as investors, creditors, shareholders, etc.

Definition of IFRS

IFRS is short for International Financial Reporting Standard is a globally adopted method of financial reporting issued by International Accounting  Standard Board (IASB). Formerly, it is known as International Accounting Standard (IAS). The standard is used for the preparation and presentation of the financial statement i.e. balance sheet, income statement, cash flow statement, changes in equity and footnotes, etc.

IFRS ensures comparability and understandability of international business. It is aimed to provide users with information about the financial position, performance, profitability and liquidity of the company, to help them in making rational economic decisions.

At present around 120 countries has adopted IFRS as a framework to govern accounting statement. With the adoption of IFRS, the presentation of financial statement will be better, easier and similar to the overseas competitors.

Similarities

Both are guiding principles that help in the preparation and presentation of a statement of accounts. A professional accounting body issues them, and that is why they are adopted in many countries of the world. Both of the two provides relevance, reliability, transparency, comparability, understandability of the financial statement.

Conclusion

As efforts are continuously made to converge these two standards, so it can be said that there is no comparison between GAAP and IFRS. Moreover, the differences between the two are as per a particular point of time that may get a change in the future.