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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)

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