Difference between IFRS and GAAP


IFRS and GAAP are two different accounting standards that businesses must adhere to when reporting their financial performance. IFRS is the Generally Accepted Accounting Principles used in most developed countries, while GAAP is the Generally Accepted Financial Reporting Standards used in the United States.

IFRS (Internal Financial Reporting Standards) are a set of accounting principles that has been developed by the International Accounting Standards Board. These standards provide guidance on how financial statements should be presented and reported, and they replace GAAP (Generally Accepted Accounting Principles).

One of the key differences between IFRS and GAAP is that IFRS require entities to use more comprehensive definitions for certain assets and liabilities. This can lead to greater transparency in financial reporting, as well as better understanding of an entity’s true economic performance. Additionally, IFRS require disclosure about uncertain matters which may impact an entity’s financial position or results of operations.

The main difference between these two standards surrounds how income and expenses are reported. Under IFRS, income and expenses are expressed as a percent of sales or revenue, while under GAAP they’re expressed as dollars earned or spent. This can have a significant impact on business decisions because it affects how profitable an entity appears relative to other similarly situated entities. For example, if Company A under IFRS reports profits of 100%, but Company B under GAAP reports losses of 50% due to higher costs associated with compliance with this standard, Company B would appear more profitable than company A even though its actual profitability may be lower.

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