Loading the player...
A:

The International Financial Reporting Standards (IFRS) - the accounting standard used in more than 110 countries - has some key differences from the U.S. Generally Accepted Accounting Principles (GAAP). At the conceptual level, IFRS is considered more of a principles-based accounting standard in contrast to U.S. GAAP which is considered more rules-based. By being more principles-based, IFRS, arguably, represents and captures the economics of a transaction better than U.S. GAAP. Some of differences between the two accounting frameworks are highlighted below:

Intangibles

The treatment of acquired intangible assets helps illustrate why IFRS is considered more principles-based. Acquired intangible assets under U.S. GAAP are recognized at fair value, while under IFRS, it is only recognized if the asset will have a future economic benefit and has a measured reliability. Intangible assets are things like goodwill, R&D, and advertising costs.

Inventory Costs

Under IFRS, the last-in, first-out (LIFO) method for accounting for inventory costs is not allowed. Under U.S. GAAP, either LIFO or first-in, first-out (FIFO) inventory estimates can be used. The move to a single method of inventory costing could lead to enhanced comparability between countries, and remove the need for analysts to adjust LIFO inventories in their comparison analysis.

Write Downs

Under IFRS, if inventory is written down, the write down can be reversed in future periods if specific criteria are met. Under U.S. GAAP, once inventory has been written down, any reversal is prohibited. (To learn more, check out International Reporting Standards Gain Global Recognition)

RELATED FAQS
  1. What is the difference between GAAP and IFRS?

    Read about some of the primary methodological and practical differences between IFRS and GAAP, the two primary financial ... Read Answer >>
  2. How is accounting in the United States different from international accounting?

    Learn how accounting standards differ between the International Financial Reporting Standards, or IFRS, and generally accepted ... Read Answer >>
  3. What advantages does a company have using international financial reporting standards ...

    See why an American company might switch from the U.S. GAAP system of accounting and adopt the international-based IFRS for ... Read Answer >>
  4. What are the fundamental differences in U.S. GAAP and International Financial Reporting ...

    Review the fundamental differences between the International Financial Reporting Standards, or IFRS, and the generally accepted ... Read Answer >>
  5. How does inventory accounting differ between GAAP and IFRS?

    Learn about inventory costing differences between generally accepted accounting principles, or GAAP, and International Financial ... Read Answer >>
  6. Do all countries follow the same GAAP?

    Learn about GAAP and IFRS accounting standards, and understand the difficulties in having a basic set of accounting principles ... Read Answer >>
Related Articles
  1. Investing

    Some Key Differences Between IFRS and GAAP

    The International Financial Reporting Standards and the U.S. Generally Accepted Accounting Principles have some key differences.
  2. Investing

    International Financial Reporting Standards

    Learn about the purpose of the IFRS, as well as its benefits, goals and fundamental difference from the U.S. GAAP.
  3. Investing

    The Impact Of Combining The U.S. GAAP And IFRS

    The convergence of accounting standards is changing the attitudes of CPAs and CFOs toward harmonization of international accounting.
  4. Investing

    GAAP And The IFRS Standards Convergence Efforts In 3 Substantial Areas

    Understand the specific steps that have been taken in hopes of converging the GAAP and the IFRS accounting standards, despite the philosophically and culturally based methodological differences ...
  5. Investing

    International Financial Reporting Standards (IFRS)

    International Financial Reporting Standards are accounting rules and guidelines governing the reporting of different types of accounting transactions.
  6. Investing

    What are Accounting Principles?

    The term accounting principles refers to rules and guidelines companies use to help them record their business and financial transactions.
  7. Investing

    Why Last In First Out Is Banned Under IFRS (XOM)

    We explain why Last-In-First-Out is banned under IFRS
  8. Financial Advisor

    Financial Accounting

    Financial accounting is the process of gathering, recording, summarizing and reporting financial data relating to a business. The ultimate goal is to accurately report the financial picture and ...
  9. Investing

    Explaining Amortization In The Balance Sheet

    Amortization is important to account for intangible assets. Read to find out more about amortization.
RELATED TERMS
  1. International Financial Reporting Standards - IFRS

    A set of international accounting standards stating how particular ...
  2. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures ...
  3. Proportional Consolidation

    In accounting for joint ventures, a method of including items ...
  4. Push Down Accounting

    In accounting for mergers and acquisitions, the convention of ...
  5. LIFO Liquidation

    When a company using the LIFO (Last In, First Out) method of ...
  6. LIFO Reserve

    The difference between the FIFO and LIFO cost of inventory for ...
Hot Definitions
  1. Tender Offer

    An offer to purchase some or all of shareholders' shares in a corporation. The price offered is usually at a premium to the ...
  2. Ponzi Scheme

    A fraudulent investing scam promising high rates of return with little risk to investors. The Ponzi scheme generates returns ...
  3. Dow Jones Industrial Average - DJIA

    The Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange ...
  4. Revolving Credit

    A line of credit where the customer pays a commitment fee and is then allowed to use the funds when they are needed. It is ...
  5. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
  6. Contango

    A situation where the futures price of a commodity is above the expected future spot price. Contango refers to a situation ...
Trading Center