One Global GAAP: IFRS vs. US GAAP
Acct 522 Current Topics in Financial Reporting
The most influential accounting reporting criteria today is the International Financial Reporting Standards (IFRS) by and U.S Generally Accepted Accounting Principles (U.S. GAAP). These two different accounting standards have various emphases. In short, IFRS states principles and it leaves the decision-making in everyday questions for accountants, while US GAAP consists of very detailed measures. Under the globalization environment, many companies are operating under a global scale; however, each country has its own accounting standard which makes the translation ...view middle of the document...
Unlike the IFRS, Unlike IFRS, the Framework is non-authoritative guidance and is not referred to routinely. Like IFRS, U.S. GAAP need not be applied to items that are “immaterial”. Unlike IFRS, there is no general principle that transactions should be accounted for in accordance with their substance, rather than only their legal form. (Bohusova, H. (2009)) IFRS serve as a conceptual basis for accountants, which is a simple set of key objectives are set out to ensure good reporting. Explanation of the objective and common examples are provided as guidance. it try not to provide specific guidance or rules for every possible situation. On the other hand, U.S. GAAP attempts to address as many potential contingencies as possible which consist of bright-line tests, multiple exceptions, a high level of detail, and internal inconsistencies.
First of all, one of the most noticeable differences between GAAP and IFRS is the method of determining the inventory costs. According to the intermediate accounting by Donald E. Kieso, Inventory for retailers is a list for goods and materials that company holds for sale in the ordinary course of business, or goods and materials held for produce the goods to be sold for manufacturers. (Intermediate Accounting, Donald Kesio, p368).
In the IFRS regarding the inventory, general inventories are measured at the lower cost and net realizable value; decommissioning costs incurred through the production of Inventory are included in the cost of that inventory; if the inventories having a similar nature, the same cost formula is applied to it as well as using to the entity; Net realizable value can be calculated as selling price less the estimated costs of completion and sale; the write-down is reversed If the net realizable value of an item that has been written down increases subsequently. (KPMG 2008 May p 76).
Unlike the IFRS, U.S. GAAP measure the general inventories at the lower cost and market; asset retirement obligations incurred through the production of inventory are added to the carrying amount of the related item of property, plant and equipment; “market” is replacement cost limited by net realizable value (ceiling) and net realizable value less a normal profit margin (floor); a write-down of inventory to market is not reversed for subsequent recoveries in value. (KPMG 2008 May p77)
The most obvious difference between these two standards would be the inventory cost method, under IFRS, the cost of inventory generally is determined using the FIFO (first-in, first-out) or weighted average cost method. The use of the LIFO (last-in, first-out) method is prohibited. On the contrary, U.S. GAAP, the cost of inventory can be determined using the LIFO method in addition to the FIFO or weighted average method.
There are two different methods of inventory are “first-in, first-out”, or FIFO and “Last-in, first –out” or LIFO. FIFO assumes that a company uses goods in the order in which it purchases them...