IFRS VS.

GAAP (Selected Topics)

Lee Jin Seung Wingman Cheung Ying Zhu

GAAP
Relevant, Reliable, and Comparable.

Generally Accepted Accounting Principal

To make information in financial statements

Affect the decisions of its users Trusted by users

Helpful in contrasting organizations

GAA P
Who establish?
FASB (Financial Accounting Standards Board) SEC (Securities and Exchange Commission)

IFRS

International Financial Reporting Standards

To improve the functioning of global capital markets by providing better information to investors and other users of financial statements.

IASB
(International Accounting Standards Board)

Robert Herz
(Chairman FASB)

If you were to look back from the year 2020 to the year 2001 you would say What chaos! and What inefficient capital markets! People will look back and say, How did those people get along then? It will be like we now say, How did people get along without cell phones? When you are in the middle of it, it is always difficult. It is important just to keep on towards that end goal.

The momentum towards global IFRS adoption

What is the difference between GAAP and IFRS?

Rule based (GAAP)

Straight forward, IT MEAN WHAT IT IS

Principle Based (IFRS)

More Practical, different interpretation for similar transaction

Income Statement:GAAP
US report (GAAP) operation expenses on the income statement according to their function. Sales Revenue Less: COGS Gross Profit Less: selling cost Less: admin =Operation Profit

Income statement:IFRS
they report operation expense on the basis of their nature. There are no distinction between revenue/gain or expense/losses Material cost are report as raw material, consumables and services. labor cost are reported as personnel expenses over head is in personnel expense and amortization, depreciation and impairment COGS are not reported as separate amount and are not required to be reported. So therefore gross profit cannot be calculated.

Example:
At year-end 2011, Baruch Bookstore owns inventory that valued at historical cost of $400,000, a replacement cost of $360,000, and a net realizable value of $380,000; the normal profit margin is 20%.

Under US GAAP, the company reports inventory on the balance sheet at the lower of cost or market, market being replacement cost (with net realizable value, $380,000 as a ceiling and net realizable value less a normal profit, $380,000 * 80% = $304,000 as a floor.) On Dec. 31 2011, inventory will be written down to replacement cost on balance sheet at $360,000. A $40,000 loss will be included in 2011 income.

Example Cont.

Journal Entries:

http://www.iasplus.com/dttpubs/0703ifrsusgaap.pdf

GAAP
(Generalley Accepted Accounting Principal)

IFRS
(International Finance Reporting Standard)

Established by FASB & SEC IASB

Goal is To improve the functioning of global capital markets by To make information providing better information to in financial statements investors and other users of Relevant, Reliable, financial statements. and Comparable. Based on Rule based Principle Based