OUTLINE OF THE GENERAL DIFFERENCES FOR BOTH IFRS AND GAAP (Essay Sample)

GAAP and IFRS
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GAAP and IFRS
The GAAP is defined as the generally accepted accounting principles which are normally set by the Financial Accounting Standards Board (FASB) in the United States. All companies and accountants in the country must follow the principles set by the FASB in preparing their reports. On the other hand, the IFRS, International Financial Reporting Standards, are accepted accounting principles that companies and accountants practice globally. IFRS are issued and controlled by the International Accounting Standards Board (IASB). The main reason for the establishment of IFRS was to have a common accounting language that will be understood by businesses and companies from one country to the other. Currently, IFRS is used in more than 144 countries globally. Major global economies that are yet to switch to IFRS are Japan, China, and the USA. Both GAAP and IFRS possess some differences and similarities on different items. This essay will outline the differences and similarities between IFRS and GAAP on how they treat various items in reporting.
Outline of the general differences
Both IFRS and GAAP have differences and similarities in the mode of application and operation. The GAAP is more rules-based, while the IFRS is more principle-based. The GAAP rules are specific to the industry and serve as the guidelines which must be followed (FASB, 2020). The IFRS principles require judgment and interpretation, depending on how they are being applied.
The other difference between the two methods is in the treatment of the inventory. Both allow the use of First In, First Out (FIFO), and the weighted-average cost on inventories (Ross, 2020). They differ when it comes to the treatment of the Last In, First Out (LIFO) method, which is allowed by GAAP and not allowed under the IFRS.
On the inventory, they also differ on the inventory write-down reversals. They both allow all the inventories to be written down using the market values. However, the change of valuations will only be allowed under the IFRS Firm (Team, 2020). GAAP will not allow this reversal, thus making the inventory's valuation extremely volatile under the IFRS.