Module 4 similarities between U.S GAAP and IFRS Essay

Module 4 similarities between U.S GAAP and IFRS Essay

Instructions/Descriptions

Module 4 similarities between U.S GAAP and IFRS Essay

The major similarities of U.S GAAP and IFRS come from the similar models they use as well as earnings per share both understand stock-based compensation built upon the similar model they both follow.

The differences between GAAP and IFRS come from the different characteristics of debt and equity coming from the accounting for securities. GAAP uses long term debt that proceeds convertible debt and IFRS convertible bonds are bifurcated into equity. It is said that the major difference also comes from the fact that IFRS is principal based while GAAP is rule based. IFRS does not allow the use of the last in, first out accounting methods whereas GAAP does.

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I would personally choose IFRS because it more widely used as it is starting to become the global standard for preparing financial statements for companies. This would bring less confusion if these was the only one used IFRS also reports any long-term assets using the best accounting standards to insure accurate financial statements which can be comparable to foreign countries.

This makes the IFRS more interesting to me. GAAP does not use documentations such as replacement cost or current market value, they rely only of the original amount paid.

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References

Miller-Nobles, T. L., Mattison, B. L., & Horngrens, E. M. (n.d.). Financial & Managerial Accounting 6th edition.

Module 4 Discussion

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Principals of Financial Accounting ACC-201-OL02 Module 4 Discussion

Discuss the major similarities and differences between U.S. GAAP and IFRS.

Generally Accepted Accounting Practices (GAAP) have a strict adherence to rules developed in the US enforced by the SEC. The International Financial Reporting Standards (IFRS) allow for professional decision making in record keeping while still following basic guidelines for financial reporting.

For example, both GAAP and IFRS require the use of balance sheets and income statements. Both also require retained earnings or cash flow to be used. Additionally, both GAAP and IFRS follow the same equation for calculating value Assets = Liabilities + Equities. Where GAAP and IFRS vary is in the value of assets and the write off debts.

For example, GAAP requires the purchase price to be used when recording value. IFRS allows the business to record current fair value, including the periodic reassessment of value. GAAP allows for businesses to determine when a debt is noncollectable, where IFRS standards are stricter.

Which of the differences do you find most interesting?

In reviewing the two accepted accounting practices, GAAP and IFRS, what I found most interesting was how the IFRS allows companies to record fluctuating value of the same item based on current fair pricing. This practice would cause equity to fluctuate based on the economy rather than purchase price and could cause ever shifting balance sheets.

Would you choose the U.S. GAAP or IFRS method? Why?

I would choose the GAAP method. The method covers all required reporting, but also leaves very little discretionary entries. This type of reporting creates a clear recording method.

References

Miller-Nobles, T. L., Mattison, B. L., & Matsumura, E. M. (2017). Horngren’s Financial & Managerial Accounting 6th Edition. New York: Pearson.

Module 4 similarities between U.S GAAP and IFRS Essay

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