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Comparing IFRS to GAAP Paper


Shane Dahlquist
ACC/290 Principles of Accounting I
8/17/2015
Lori McKinney

Comparing IFRS to GAAP Paper


Currently, the U.S. Securities and Exchange Commission (SEC) follows the GAAP
(generally accepted accounting principles) as standard guidelines for all accounting practices.
However, a new set of standards, called IFRS (International Financial Reporting Standards), has
become widely popular throughout the world and many are pushing for it to replace the GAAP
as the SEC standard. IFRS was developed by IASB (International Accounting Standards Board)
to be a globally accepted standard for accounting practices that would allow investors to compare
companies from all over the world, regardless of differences in local economies or business
standards.
IFRS 2-1
When it comes to the balance sheet format, the GAAP and IFRS are pretty similar, but
they do have a few important differences that accountants need to be aware of. The GAAP
requires that all accounts be ordered by their measure of liquidity so highly liquid assets, such as
cash, are ranked first. The IFRS has no such requirements; although it does recommend that
companies record their assets in reverse order of liquidity, there are no set rules determining the
order assets should be recorded. The other difference is that the GAAP states that assets are
reported first, followed by liabilities, and finally shareholder equity. The IFRS, however, has
liabilities reported last, after shareholder equities.
IFRS 2-2
Both the IFRS and the GAAP have similar objectives to their financial reporting. Both
seek to provide accurate and relevant financial information to be used by all businesses financial
documents. The major difference between the two is that the IFRS focuses on providing the same

information, in the same comparable format, from businesses throughout the world. The GAAP
however, is primarily only concerned with businesses within the USA.
IFRS 2-3
The IFRS does not use the terms common stock and balance sheet like the GAAP does,
instead it uses the terms share capital ordinary and statement of financial position. Share capital
ordinary is the same as common stock, it refers to the value of equity that has been acquired by
owners in exchange for cash. The term is commonly used in the European Union instead of
common stock, so the IFRS chose to use it instead. A statement of financial position is
synonymous with a balance sheet in that both are used to compare assets, liabilities, and equity,
although they are formatted slightly different. The IFRS chose to use the term statement of
financial position because it better describes the statements purpose.
IFRS 3-1
The USA is arguably the largest and most powerful economic engine in the world with
millions of business that apply the long-standing GAAP standards to their accounting practices,
so switching to IFRS would be no easy task. Businesses throughout the country would have to
change their accounting departments entirely; employees would require new training, new
computerized accounting systems would be required, and there would be new auditing
requirements. Any accounting software or database programs would, at the very least, require
total reworking, most would probably scrapped and entire new programs developed. On top of
all of that, educational programs training new accountants would have to make the switch as well
so that their students have relevant knowledge. Overall, it would require a tremendous amount of
time and money for businesses all across the country to switch to the IFRS, so if SEC does

decide to make the change they would need to give businesses a very compelling justification as
to why it would benefit them in order to gain their support.
IFRS 4-1
Revenue recognition is a very important part of accounting standards and the GAAP and
IFRS both handle it a little differently. The GAAP has revenue recognition standards that are
different amongst different industries. For example, technology companies will have different
standards than automotive manufacturers. Under IFRS standards however, all companies,
regardless of industry, follow the same general guidelines. These guidelines state that revenue
can be recorded when it becomes economically significant.
IFRS 4-2
The IFRS does not include gains and losses in the definitions of revenues and expenses
because they are generally not part of operating activities. Within financial documents they will
be showed separately so that it is clear they do not directly impact operational performance. This
is to give users of said financial statements a better understanding of a businesss overall
performance.
IFRS 7-1
The Sarbanes-Oxley Act of 2002 (SOX) was put in place to provide additional rules that
would help prevent corporate fraud at an executive level and to improve transparency in financial
reporting. Businesses with in the USA were opposed to the bill because it created additional
accounting cost and made it more complex for companies to stay in compliance. However, the
law did appear to be effective in it overall goal of limiting fraud and creating more transparency.

References
Financial Accounting: Tools for Business Decision Making. : John Wiley & Sons, Inc.
A Guide To The Sarbanes-Oxley Act. (2006). Retrieved from http://www.soxlaw.com/
IFRS and US GAAP: similarities and differences. (2015). Retrieved from
http://www.pwc.com/us/en/issues/ifrs-reporting/publications/ifrs-and-us-gaapsimilarities-and-differences.jhtml

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