These words serve as exceptions.
US investors keep looking overseas for investment opportunities. To assist investors and preparers in becoming financially bilingual, this guid e provides a broad understanding of the major differences between IFRS and US GAAP, as well as insight into the level of change on the horizon.
We continue to believe in the long-term vision of a single set of consistently applied, high-quality, globally-accepted accounting standards. However, acceptance of an outright move to international standards is off the table, at least for now. Listen to our podcast. International Financial Reporting Standards change.
Don't let financial reporting differences affect perspectives on cross-border deal value. And how financial executives can anticipate the adoption of IFRS in order to minimize the last-minute adjustments? At that time, conceptually and practically, the differences between the two frameworks were numerous and significant. These two initiatives revealed the importance of international standards and concluded, to a certain extent, about 30 years of convergence between the two standard setters.
Once the convergence effort is acknowledged and its results identified, are both standards still different? One of the major differences lies in the conceptual approach: The inherent characteristic of a principles-based framework is the potential of different interpretations for similar transactions.
This situation implies second-guessing and creates uncertainty and requires extensive disclosures in the financial statements.
In a principle-based accounting system, the areas of interpretation or discussion can be clarified by the standards-setting board, and provide fewer exceptions than a rules-based system. However, IFRS include positions and guidance that can easily be considered as sets of rules instead of sets of principles. At the time of the IFRS adoption, this led English observers to comment that international standards were really rule-based compared to U.
GAAP that were much more principle-based. The difference between these two approaches is on the methodology to assess an accounting treatment. However, the professional judgment is not a new concept in the U.
While this is not a comprehensive list of differences that exist, these examples provide a flavor of impacts on the financial statements and therefore on the conduct of businesses. This disconnect manifests itself in specific details and interpretations. Consequently, the theoretical framework and principles of the IFRS leave more room for interpretation and may often require lengthy disclosures on financial statements. On the other hand, the consistent and intuitive principles of IFRS are more logically sound and may possibly better represent the economics of business transactions.
Both systems allow for the first-in, first-out method FIFO, and the weighted average-cost method. Another key reporting difference is that GAAP requires financial statements to include a statement of comprehensive income.
IFRS does not consider comprehensive income to be a major element of performance and therefore does not require it. This leaves some room for mixing owner and non-owner activity within the financial statements.