What is the difference between GAAP and IFRS?

GAAP or generally accepted accounting principles is the accounting standard used by the U.S. securities and exchange commission. U.S. accounting procedures must follow the rules set forth by GAAP. The rules speak to the accepted form for recording and presenting accounting information with clarity and consistency. IFRS or the international financial reporting standards foundation is a non-profit accounting organization.

IFRS develops and promotes and oversees the international accounting standards board. The IFRS is not as stringent with the rules on reporting income; therefore, the picture may be a little inflated. At one time, the SEC was considering moving from the U.S. GAAP to the IFRS; however, this consideration has ended because of the differences between the standards, and at this time and moving forward, they will just coexist.

GAAP and IFRS are both standards of accounting. GAAP stands for Generally Accepted Accounting Principles. This standard is only used in the United States. IFRS stands for International Financial Reporting Standards. This standard is used all over the world.

They both focus on revenue and assets, but GAAP also focuses on any gains, losses, and income. Being that GAAP focuses on comprehensive income, it must have this in its financial statements, while IFRS does not. Another difference between them comes from inventory reversal. In GAAP, this reversal is prohibited, but in IFRS, it is allowed if the reversal falls under certain guidelines.

GAAPs refer to the basic principles and guidelines for accounting, which are given by the FASB -Financial Accounting Standards Board. All industry practices have also accepted these standards. The United States, in general, makes use of the Generally Accepted Accounting Principle (GAAP) and must be strictly adhered to when stakeholders are receiving the distribution of their financial statements.

One the other hand, IFRS stands for International Financial Reporting Standards. These are another set of accounting standards that provides an outline about the treatment of transactions and events in financial statements for the purpose of the report. IFRS specifically states the way businesses should keep maintenance and report their account records.

These standards were basically set up to solve differences in the language barrier so as to make businesses easier among different countries with different languages. In addition, the GAAP standards were set up in the United States by the Security and Exchange Commission, while the IFRS stands were commenced in the United Kingdom by International Accounting Standard Board (IASB).