Comparing IFRS to GAAP Essay

In the Accounting industry, there argon various principles and guidelines by which financial accountants, analysts, and organizations need to abide by. The International Accounting Standards Board (IASB) issues standards (IFRS) that hand been adopted by the United States and several countries outside of the U.S. (Kimmel, Weygandt & Kieso, 2010). The IFRS along with mostly Accepted Accounting Principles (generally accepted score principles), professionals in the accounting industry character these guidelines as a baseline on which accounting practices are built upon. These standards are governed by the Securities and Exchange Commission (SEC) which ultimately oversees U.S. financial markets and accounting standard-setting bodies. travel forward, the elements of IFRS and GAAP impart be discussed to illustrate the similarities and differences and how it relates to Accounting and used in line practice.IFRS 8-1 Fair-Value MeasurementFair economic value measurements provide users o f financial statements with an straight picture of the value of a participations summations. both(prenominal) IFRS and GAAP require firms to include information regarding fair value measurements practices in the nones of financial statements. Under either system, companies will be require to opus assets at either arrest value or fair value, depending on the situation. As a general rule of thumb, all assets in the same program must receive the same valuation treatment. In regards to the value of receivables, IFRS uses a two-tiered method that first analyzes individual receivables, and then looks at receivables as a whole to determine if there is any impairment. (KPMG, 2012).Comparing IFRS to GAAP proveIFRS 9-1 Component DepreciationComponent depreciation happens when an asset has fundamentally polar parts that should be depreciated with different treatment. Under IFRS, firms are required to use component depreciation if the parts of the asset offer varying patterns of ben efit. The think behind this is that it provides a clearing picture of the assets book value. This method is also permitted under GAAP, but U.S. companies rarely use it in practice (Ernst & Young 2012)IFRS 9-2 Revaluation of plant assetsThe reevaluation of plant assets can be defined as the process of change values from book value to fair value. This process is required in the event that there perk up been substantial economic changes in the market have occurred. For example, if a telephoner purchased a building 10 years ago and it has appreciated collectable to a real estate boom, it can be reevaluated to fair value. If an asset is to be reevaluated under IFRS, it is required that all assets in its class must be treated with the same valuation method. This ensures that companies maintain consistency in valuations for the same types of assets.IFRS 9-3 Product Development ExpendituresCompanies that utilize GAAP standards are required to expense all research and ripening costs by describe them on the income statement. In contrast, IFRS only places this requirement on research costs. once technological viability has been reached, it is optional for a company to start inform development costs as capital expenditures. This allows the costs to be depreciated over the effective life that the technology provides (Brice, 2009)Comparing IFRS to GAAP EssayIFRS 10-2 Contingent indebtednessIn the most basis sense, a depending on(p) liability is an obligation that has a probability of occurring in the future. These items will not be include in financial statements, but should be disclosed within the notes. The company will also be required to measure the nature of the contingent liability in subsequent accounting periods. (Ernst & Young 2014) Imagine an rock oil companythat was involved in an accidental oil spill in the Pacific Ocean. An example of a contingent liability would be latent fines imposed by the Union for environmental violations. The company may no t know the extent of the fines yet, but they should be disclosed as a contingent liability in the notes. Because the fines can be predicted, it is necessary to report the information to users of the financial statements.IFRS 10-3Similarities and Differences in Accounting Liabilities The basic principles of accounting for liabilities among GAAP and IFRS nearly identical, but there are several tike differences. On the balance sheet, GAAP requires liabilities be reported in effect of liquidity, while IFRS requires reverse order of liquidity. When it comes to reporting interest expenses, GAAP permits both(prenominal) the effective interest rate method and the straight-line method however IFRS will only allow the effective interest rate method. Furthermore, IFRS has special rules for contingent liabilities, which is not a requirement under GAAP.In the grand scheme, the differences mingled with IFRS and GAAP are fairly small. Each has specific requirements related to the reporting of assets and liabilities, which can result in slightly different financial results. Both FASB and IASB are working actively to modernize their accounting rules with changes in the evolving business climate. In summary, both systems are important for maintaining high quality accounting standards in the global economy. Comparing IFRS to GAAP EssayReferencesJerry J. Weygandt Paul D. Kimmel Donald E. Kieso financial Accounting Hoboken John Wiley and sons inc. 2011 7th Ed Retrieved from http//www.cpa2biz.com/Content/media/PRODUCER_CONTENT/Newsletters/Articles_2009/CPA/ kinsfolk/DevCosts. Retrieved from http//www.ey.com/GL/en/Issues/IFRS/IFRS-OverviewKPMG. 2012. IFRS Compared to US GAAP An Overview. KPMG