Differences and

Similarities
Between IFRS and
US GAAP

Celise Wurster
 The following is a time line of the International Financial Reporting Standards,

according to the Institute of Chartered Accountants of England and Wales website.

The International Financial Reporting Standards started in 1966 with the proposal to

establish an International Study Group comprised of the Institute of Chartered

Accountants of England and Wales, the Canadian Institute of Chartered Accountants

and the American Institute of Certified Public Accountants. Then in February of

1967 the actual forming of accountants International Study Group (AISG) they

began to publish papers on important topics up until 1973 when it formed the

International Body Writing Accounting Standards. June 1973 the International

Accounting Standards Committee began. Their intent was that the new

international standards must be capable of rapid acceptance and implementation

worldwide. This was in effect until 2001 when they restructured. Then in 1997 the

Standing Interpretation Committee was established to stop the wide spread

variance of accounting practices. February 2000 the Securities and Exchange

Commission published an acceptability of the International Accounting Standards,

the in May of the same year the International Organization of Securities

Commissions endorses International Accounting Standards for use in cross border

listings. Then in August of 2000 the Institute of Chartered Accountants of England

and Wales published a Statement endorsing the International Accounting Standards

for the European Union. In April of 2001 the restructuring happened for the

International Accounting Standards Committee and the name changed to the

International Accounting Standards Board, the July of the same year they renamed

the standing interpretation committee to the International Reporting Issues

2
Committee. May of 2002 the published a book called “Preface to International

Financial Reporting Standards”. In June of 2002 the European Council of Ministers

approved the regulation that would require all European Union Companies listed on

a regulated market to prepare accounts in accordance with the International

Accounting Standards after January 1st of 2005.

Also in 2002 FASB and IASB sign “The Norwalk Agreement” in which they commit to

reduce the differences between US GAAP and IFRS initiating the conversion efforts

(swensonadvisors.com).

In June of 2003 the first International Financial Reporting Standards were published.

In 2006 the ISAB announces “three years stable platform period”- entities that have

already adopted IFRS do not need to implement the new IFRS until 2009. In 2009

the SEC removes reconciliation requirement for non-US entities reporting under the

IFRS then in 2008 the SEC proposes a roadmap for potential mandatory adoption of

IFRS by the US filers. According to the IFRS website the following countries are to

adopt the standards Canada and Korea are expected to transition by 2011, Mexico

by 2012, Japan is supposed to decide whether to adopt the standards by 2012. The

SEC the website says envisions the earliest possible date for required use by public

companies by 2015. All discussions so far have only been for the public companies

and not the private or not for profit companies. Though according to this site the

AICPA’s governing council in May of 2008 approved amending rules 202 and 203 of

the Code of Professional Conduct to recognize the IASBCS and the International

Accounting Standard Setters, this removed the barrier that gives the U.S. private

companies and the Not-for-profit organizations the choice whether they want to use

GAAP or the International Financial Reporting Standards.

3
 Some of the terminology differences that I could find between GAAP and IFRS

first are the U>S version of stock is Shares for IFRS. Then the US word in

accounting for inventory is known as stock under the IFRS, equity allocation in the

US is known as reserves in IFRS. Equity investee under US is associate in IFRS;

accrued liability in US is provision under IFRS. Plan in US is Scheme in IFRS and

finally for auditing the words present fairly in the US is true and fair under the IFRS.

(conferences.aicpa.org)

Some of the biggest differences that I could find between GAAP and IFRS first

GAAP is a rules based guidance where there are a set of rules that must be followed

where the IFRS is a principles based. (www.investopidea.com Joseph Nguyen) Then

under GAAP all intangibles are recognized at fair value whereas the IFRS says it is

only recognized if the asset will have future economic benefit as well as measured

liability. Then for inventory under GAAP you are allowed to use multiple costing

systems like LIFO, FIFO and weighted average where under the IFRS you are only

allowed to use FIFO under no circumstances are you allowed to use LIFO. Next is

write downs under GAAP under no reasons will you reverse a write down and write

something back up where under IFRS inventory write downs may be reversed in the

future if specific conditions are met. The IFRS had different probability thresholds

and measurement objectives for contingencies (ifrs.com/background-

gaap.ifrs.html). The IFRS does not permit curing debt covenant violations after the

year end for the financial period. Also the IFRS guidance regarding revenue

recognition is a lot less extensive than GAAP’s guidance and contains relatively little

industry specific instructions with this the IFRS guideline book is only about ½ of

one of GAAP’s guidance so there are a lot of grey areas or some areas not covered

at all. Some of statement differences are not a lot but there are some, first in the

4
income statement the extraordinary items are lumped together under the IFRS

where under GAAP all extraordinary items must be listed under the net income.

Earnings per share are not required under IFRS which we know that under GAAP it is

required. Under IFRS developmental costs are all capitalized if certain criteria are

met but under GAAP all developmental costs are expensed in the period they were

incurred. Some of the other differences listed by Swenson advisors website are as

follows, the costs are allocated to individual assets under GAAP but under the IFRS

the initial measurement is at cost. Finite lives are amortized over the period

through GAAP but M&A intangibles are recorded at fair value under IFRS. Some

examples of these are advertising costs, computer software costs, website

developments, R&D expenses, start-up costs and anything that falls under FAS141R

under IFRS the revaluation is made on a regular basis. The differences between the

revenue recognition under GAAP and the IFRS are as follows. GAAP requires 4

criteria first pervasive evidence, delivery, fixed/determinable pricing and

collectability assured. Under IFRS they have 5 criteria, transfer of risk and rewards,

no continuing management involvement, measurement reliability, probable

economic benefit, and cost incurred/ to be incurred measured reliability. The items

that are in question with these criteria is the right of return, multiple deliverables,

software revenue, franchise revenue, real estate revenue and long term contracts.

For these to be revenue under IFRS the must have reliable measurement, probable

economic benefit, the stage of completion reliability measured and cost to be

incurred reliability measured. As for the differences in accounting standards under

GAAP they have the accounting principles which allows for retroactive application,

period specific effects, and the cumulative effect. But the IFRS has an accounting

policy which only if results in reliable and more relevant information for B/S, P/L,

5
C/F. It is voluntarily retroactive and new accounting policies applied to the carrying

value of assets and liabilities. Next is the accounting estimates under GAAP the

estimates must the period of change, or period of change and future periods and

there are no restatements allowed these are the same for the IFRS. Under IFRS one

prior year of financial statements are required where under GAAP it is desirable but

not required. Some of the other differences listed by iasplus.com are the

classification of liabilities on refinancing; under the IFRS it is noncurrent if done

before the balance sheet date but under GAAP the timeline moves to the issuing of

the financial statements. For Debt Covenant it is noncurrent under IFRS if the

lender has granted a 12 month waiver before the balance sheet date but again

GAAP allows till the financial statements issuance date. Next is whether the costs of

idle capacity and spoilage can be included in inventory under GAAP this is allowed

but it is prohibited under the IFRS. On the statement of cash flows interest received

under the OFRS may be listed as operating, financing or investing activity where

GAAP required it to be listed as an operating activity. There are a lot of tax issues

between the IFRS and GAAP a lot of tax things are not stated under IFRS, mainly tax

deferments. Now for PP&E under IFRS not only may you use historical costs which

is what is required under GAAP but you may also use a revalued amount which is

fair value at the date of revaluation less all accumulated depreciation. Gains and

losses on noncurrent assets are recognized under IFRS but not allowed under GAAP.

There are a lot of different rules for leases, leaseholds, lease payments and tax

benefits related to leases. There are also a lot of differences in parent and

subsidiaries and how the reporting date is to be done but under IFRS they must

adjust for any significant transactions whereas GAAP only requires disclosure not

6
adjustments. How the presentation of minority interest is done and how the

financial statements for parent are stated.

There are a lot of differences between GAAP and the IFRS I have looked at

papers that are hundreds of pages long, a lot of the differences are not very

significant and some are. From everything I have read the SEC and IFRS are trying

to work out the differences so the transition is as smooth as possible. Right now the

IFRS will be implemented for only publically traded company’s not private or not-for-

profit companies. It is an option for private and not-for-profit companies to use and

maybe someday in the future it may become a requirement in the US for them to

use IFRS. Only then will it affect me so far, I may work for a publically traded

company down the road and at that time I will hopefully have learned the

differences and will be able to adjust to them rather quickly. I do not see what the

big issue is with implementing the IFRS in the US besides the tax issues between

the financial statements and the tax statements that are needed. It will take some

years to work out all the kinks with like anything else that is new, when the current

regulations were put into place they had some trouble with those and this is no

different you must keep up on your education so you can stay on top of all new

policy changes and trends but this is required now. I see no problem with this being

implemented in the US it would make it easier to make since of other countries

financial statements because everyone’s will be the same.

7
Bibiolgraphy

www.icaew.com

www.investopedia.com

ifrs.com/background-gaap.ifrs.html

ifrs.com/ifrs_faqs.html

www.articlebase.com/business-articles/differences-between-ifrs-us-gaap-

1387898.html

www.swensonadvisors.com

conferences.aicpa.org

pricewaterhousecoopers readiness series (ifrs-simdif_book-final-2010(1).pdf