COMPARISON BETWEEN IFRS AND GAAP

            International financial reporting standards is commonly represented with an acronym IFRS. These are well put international accounting standards that affirm how particular transactions including other events are reported in financial statement.  These standards are put in place by the International Accounting Standards Board (ISAB) and they provide strict rule to which all accountants must report and sustain their accounts. The IFRS had an aim of establishing a similar language to all accounting activity thus allowing the understanding of all businesses, enterprises and accounts across the world (Weygandt 2010). GAAP which is an acronym of Generally Accepted Accounting Principles refers to a universal set of accounting values, principles and measures that organizations use while compiling their financial statement. GAAP is generally important to companies as it enables the financiers to have a minimal standard of uniformity in their financial statements. Transparency and consistency of financial reports from one company to another is enhanced through the use of GAAP (Flood 2015). However the application of GAAP rules is not enough in accounting as accountants may have a room to distort figures in the financial report as the GAAP standard are only set rule. IFRS is mostly recommended and widely used around the globe since they provide guidelines to which prepare and follow while disclosing their financial report. Different countries have different GAAP rules and this makes it hard for IFRS to make worldwide comparisons. Through the ISAB, it ensures that the IFRS is able to bring transparency, accountability among the financiers and efficiency in the economic markets globally. They are also able to offer advice to all financiers who fail to follow these practical guidelines.

 

            IFRS permits the transfers of debt investment from fair value through profit and loss category to available for sale category but on rare cases as a result of financial crises the debt is held till maturity.  This is mean that they fail to allow any debts to be categorized as non-current when businesses that have violated their agreement unless in situations where the lender has provided a waiver before the closing of the balance sheet. While GAAP permits transfers away from the trading security category but rare reclassifications are found under this category. This shows that the IFRS rarely allows bad debts as their guidelines are strict and hence it may enable the business to be able to evaluate their debt status clearly from the finance report with a quick glance of the unpaid debts (Shamrock 2012). The difference that occurs in terms of fair value option shows that the IFRS has more restrictions than GAAP when determining the time when the company is permitted to elect their fair value option as they do it specifically on specific circumstances. While in GAAP there exist fewer restrictions on fair value option where it states that the intention of the fair value option is to address specific circumstances which according to GAAP might not be in existence (Shamrock 2012).

            It is as a result of these differences that some countries opt to implement either the IFRS or the GAAP rules. Most of the people however have evolved into adopting the IFRS into their business. In them converting into the IFRS system they will be able to present their financial statements on the same foundation as with that of their competitors thus enhancing easier comparison and while raising of capital in a foreign country (Hyūman et al 2009).  However full acceptance of IFRS is not advisable as there will be loss of a certain level of quality while the cost of converting to IFRS will be high and might outweigh the advantages.  This has therefore discouraged total acceptance of the company.

However, some have decided to try by partially agreeing through adaption of the IFRS to collaborate with the GAAP system. Businesses therefore should be aware of the IFRS shortcomings before fully adapting the system. They should be aware of the fact that the IFRS only provides selective information and is less extensive than that of GAAP on industry specific guidelines. Adoption of the IFRS will also require extensive professional comprehensive training so as to enable the accountants and other financiers to have knowledge on the use of the IFRS.

            In conclusion it is important to note that each and every system between the two is important but insufficient in its operation. That’s why it’s important to incorporate the two and use them in the accounting discipline while producing the financial reports. Conversion of any system is not applicable in the short run but it can however be attained in the long-run. It is thus important for any business to consider first what they want and would like t achieve and measure on the cost needed for their conversion process so as to know the right decision that they ought to take. However collaboration of the two is the most appropriate accounting step that any business may take as they both have their advantages and disadvantages as well.

 

 

 

 

 

 

 

References

Flood, J. M. (2015). Wiley GAAP 2015: Interpretation and application of generally accepted       accounting principles. Chichester, U.K: Wiley.

Hyūman Intafēsu Shinpojūmu. (2009). Human interface and the management of information:      Symposium on Human Interface 2009, held as part of HCI International 2009, San       Diego, CA, USA, July 19-24, 2009 : proceedings. Berlin: Springer.

Shamrock, S. E. (2012). IFRS and US GAAP: A comprehensive comparison. Hoboken, N.J: John             Wiley.

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2010). Financial accounting: IFRS. Hoboken,    N.J: Wiley.