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 conceptually 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 measured reliability. Intangible assets are things like 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)

This question was answered by Joseph Nguyen

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. How does the use of International Financial Reporting Standards (IFRS) affect key ...

    Learn how the use of international financial reporting standards (IFRS) affects financial ratios compared to U.S. generally ... Read Answer >>
  5. 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 >>
  6. 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 >>
Related Articles
  1. Markets

    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. Markets

    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. Personal Finance

    International Reporting Standards Gain Global Recognition

    Comparing financial numbers from corporations in different countries is possible with the adoption of IFRS.
  4. 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.
  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. Markets

    Accounting Basics: Financial Reporting

    By Bob Schneider Generally Accepted Accounting Principles (GAAP)A key prerequisite for meaningful financial statements is that they be comparable to those for other companies, especially firms ...
  7. 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.
  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

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

    We explain why Last-In-First-Out is banned under IFRS
  10. Investing

    When & Why Should a Company Use LIFO

    By using LIFO (last in, first out) when prices are rising, companies reduce their taxes and also better match revenues to their latest costs.
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. International Accounting Standards - IAS

    An older set of standards stating how particular types of transactions ...
  4. Proportional Consolidation

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

    In accounting for mergers and acquisitions, the convention of ...
  6. Book Value Reduction

    Reducing the value at which an asset is carried on the books ...
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center