Two sets of accounting rules adopted for international use are international standards known as GAAP and International Financial Reporting Standards (IFRS). The first is developed by the Financial Accounting Standards Board (FASB), the power of which comes from the US Securities and Exchange Commission (SEC). The second is the International Accounting Standards Board (IASB), the founding body for independent accounting standards in London. Although GAAP and IFRS show some similarities in the presentation of financial statements, they do not agree on all issues. Differences exist in the reporting and classification of income statements and items of balance sheet items between the two rules.
Contrary to the GAAP rule-based standard, IFRS principles are generally simpler in accounting and disclosure requirements. The profit and loss statement is IFRS according to the GAAP requirement and is known as the "Derecognition of Total Income". IFRS Statement of Comprehensive Income is similar to GAAP; However, there are few differences when comparing the two income statements.
Describes the GAAP earnings statement or single-step or multi-step format. However, IFRS does not mention a one-step or multi-step approach. In accordance with IFRS, units are required to cover expenditure by their nature (for example, material costs, direct labor, advertising costs, depreciation costs and employee benefits) or their function (eg Sales, Sales and Administrative Costs). Although GAAP does not have such requirements, the SEC requires a functional presentation. While GAAP defines operating income, IFRS does not recognize this key measure. In addition, extraordinary items are prohibited under IFRS; while GAAP states that the entity must report extraordinary items when they are unusual and rarely occurring. A separate part of the profit attributable to non-controlling interests (or minority interests) is included in the IFRS statement of comprehensive income. In addition, while IFRS identifies certain minimum items presented in the statement of comprehensive income, GAAP does not have minimum information requirements. However, the SEC is setting stricter presentation standards.
Presentation of the balance sheet is mandatory under both GAAP and IFRS. The most obvious difference is that IFRS instead refers to the "Financial Situations" instead of the balance sheet. Accounting for the statement of financial position is recognized under IFRS, which means that similar items are grouped to achieve significant amounts of the components. The IASB also indicates that the parts and subheadings of the financial statements are more informative than the whole; As a result, the IASB does not in itself encourage the meaning of summary accounts (eg total assets, total liabilities, etc.). In contrast to GAAP, IFRS's current assets are typically classified in the reverse order of liquidity, for example, according to IFRS, cash is the last. In addition, most IFRSs show separate financial statements of current and long-term liabilities , except for those industries where the presentation of liquidity contains more useful information It is essential to indicate significant differences between the reporting items in GAAP and the IFRS balance sheet
Within the scope of the tangible fixed assets, the value of the inventory must be valued differently in accordance with IFRS. (LIFO) is not permitted to be used in accordance with IFRS. In addition, unlike GAAP, if the inventory is assessed at a lower price or at a market value, it may be withdrawn subsequently up to the amount of previous write-downs in IFRS. IFRS enables the revaluation of property, plant and equipment and intangible assets to be recognized as a comprehensive income
. IFRS uses a different terminology in the equity section of the statement of financial position. For example, subscribed capital is the face value of the issued share. This includes ordinary shares (hereinafter referred to as common shares) and preferential shares (hereinafter referred to as preferred shares). Share of equity in IFRS is the excess of paid-in surplus at nominal value
The serious problem caused by inequalities in the presentation of the GAAP and IFRS financial statements is the lack of uniformity. This problem makes it difficult to compare financial statements with GAAP and IFRS. As a result, it is reasonable for US companies to help their foreign subsidiaries transition to IFRS in order to facilitate stakeholder comparison and access to global capital markets. However, the transition to IFRS can not be useful to small American companies; conversion results in additional costs that may outweigh the benefits.
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