Different generally accepted accounting principles (GAAP) have been developed in various countries over the past few decades. These differences have arisen largely due to unique legal, regulatory, litigious, social, economic, religious, and cultural environments. They result in financial statements that are not comparable and difficult for users to interpret. This in turn acts as a barrier for global capital movement, potentially resulting in less than optimal allocation of capital.
More recently, there has been a movement toward harmonization and convergence of GAAP. The most significant initiative has been led by the International Accounting Standards Board (IASB), formerly known as the International Accounting Standards Committee. This group has primary responsibility for the development of International Financial Reporting Standards (IFRS). The Securities and Exchange Commission has indicated January 1, 2015 as the likely date for full implementation for IFRS for publicly traded firms filing with the SEC.
All of our accounting courses at St. Joseph's University will begin including international accounting topics. Specifically, the FAIS III course (307) has a unit designed to cover the essentials of IFRS. These essentials include the following:
What does IFRS stands for
What are the general uses of US GAAP and IFRS
What is the importance of IFRS in the Future
IFRS allows for a uniform financial reporting standard. As we continue to evolve into a global economy it will be important for international business to have comparable financial statements. For international companies this will allow one standard of financial statements to be used by all subsidiaries regardless of the country they operate in.
What are the sources of US GAAP and IFRS
- FAF -Financial Accounting Foundation
- FASB - Financial Accounting Standards Board
- FASAC - Financial Accounting Standards Advisory Committee
- Standards, interpretations, and staff positions
- Financial accounting concepts
- Emerging issues task force statements
- IASC - Internations Accounting Standards Committee
- IASB - International Accounting Standards Board
Additional information may be found in the appendix of the following document: Click HERE
Give an example of IFRS financial statements
"Financial statements are a structured representation of the financial position and financial performance of the entity" (IAS 1.9).
The main statements are:
- Statement of financial position
- Statement of comprehensive income
- Statement of changes in equity
- Statement of cash flows
- Notes including significant accounting policies and explanatory information
- Statement of financial position at the beginning of the earliest comparative period when an entity applies an accounting policy retrospectively or makes a retrospective restatement.
Additionally, with IFRS the financial statement format is often different.
What are a few differences between US GAAP and IFRSA few of the major differences include:
- US GAAP is considered rules based while IFRS is principle based. IFRS looks to provide a framework to which professional judgment may be applied. It is argued that the principles based foundation of IFRS allows too much room for bias. On the other hand, it is also argued that rules based GAAPs are too large.
- Presentation and disclosure of financial statements (See IAS 1).
- Recognition, if recognized, how and when. (Inventory Recognition See IAS 2) (Unusual Items See IAS 8)).
- Measurement, how is cost determined. (Fair value adjustments See IAS 16) (Income taxes See IAS 12).