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. Economics

    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. Economics

    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 ...
  3. Economics

    International Financial Reporting Standards (IFRS)

    International Financial Reporting Standards are accounting rules and guidelines governing the reporting of different types of accounting transactions.
  4. Forex Education

    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 ...
  5. Economics

    What are Accounting Principles?

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

    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 ...
  7. Fundamental Analysis

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

    We explain why Last-In-First-Out is banned under IFRS
  8. Fundamental Analysis

    Inventory Valuation For Investors: FIFO And LIFO

    We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line.
  9. Investing

    GAAP

    Learn more about the generally accepted accounting principles, standards and procedures that companies use to compile their financial statements.
  10. Investing News

    Mind the GAAP: Buyer, Beware Profit 'Adjustment'

    S&P 500 companies are reporting "adjusted" earnings that are much more enticing than their profits according to generally acceptable accounting principles.
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. Book Value Reduction

    Reducing the value at which an asset is carried on the books ...
  6. Accounting Principles

    The rules and guidelines that companies must follow when reporting ...
Hot Definitions
  1. Physical Capital

    Physical capital is one of the three main factors of production in economic theory. It consists of manmade goods that assist ...
  2. Reverse Mortgage

    A type of mortgage in which a homeowner can borrow money against the value of his or her home. No repayment of the mortgage ...
  3. Labor Market

    The labor market refers to the supply and demand for labor, in which employees provide the supply and employers the demand. ...
  4. Demand Curve

    The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity ...
  5. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  6. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
Trading Center