The USA GAAP is the Generally Accepted Accounting Principles acceptable in the American financial setting. They are the basically accepted and practiced ways of recording and presenting information concerning accounts. The main reason for the imposition of accounting standards is that there is a salient need for all companies to have an acceptable level of consistency in the way they present their financial books. On the other hand, the IFRS or international financial reporting Standards are internally accepted and set standards of how various elements of accounting should be depicted.
The main push behind them is the level of international consistency to ensure that international comparison is simpler and much more regulated. Where the USA GAAP are fundamentally adapted for the American economy, the IFRS are applied in every country that subscribes to them, providing a general template to aid international trade an financial reporting. It is a standard of synchronization of the various methods of accounting in existence. While the International Accounting Standards Board is responsible for regulation and updating of the IFRS, the USA GAAP is a combination of many resolutions and bodies and is loosely regulated.
Buy The USA GAAP and the IFRS essay paper online
Both standards are made with the background that they will provide decision relevant information for all the persons involved or somehow connected with the company. The only difference in this approach so the while the GAAP is a more caustic and generalized approach, the IFRS provides a more principle-oriented approach to ensure that the reporting is standardized. In theory, the IFRS is built with an aim of being of greeter reliability in matters of scope and relevance.
Since the fundamental aim is the same for both standards, the main financial books are expected. This is the balance sheet and the income statement. The IFRS dictate the need for a statement that shows either any and all changes in the equity matters and finances of the company or all these that occur without any relation to the capital transactions of the company. The USA GAAP expects that the company prepare a statement of comprehensive income which may or may not be a part of the income statement or of change in equity. In the latter however, the issue of disclosure can be sorted out in different accounts that comprise information on the shareholder's equity and could even be made as notes or appendices to the financial statements.
The IFRS applies the IAS 1 as the relevant standard for the balance sheet preparation and presentation while the USA GAAP applies the SFAS 6, ARB43 SFAS 109 and Deregulation S-X. IAS 1 dictates the contents and items to be shown on the balance sheet and even has information on the content of any extra notes and of content on the face of the financial statement. On the other hand, the USA GAAP has no prescribed format and the relevant regulation, the SEC Regulation S-X (Rule 5-02) has no requirement for line items on the face of the balance sheet.
IAS 1 also requires that all the current and non-current items be depicted as separate items on the balance sheet except in cases where the presentation is based on the company's liquidity which is more relevance and reliable. Although this is common practice even in company's and business entities that follow the USA GAAP, it is not a requirement. It is also common to see a balance sheet for specialized industries and in all scenarios where such a classification has no relevance.
While IAS 1 specifies no sub-totals, all non-SEC reporting entities are expected to, under SFAS 6.15, to make a presentation of the total current liabilities where they appear in a classified balance sheet. For uniformity and practice, the current assets are also provided as sub-totals. The IAS 1 requirement recognizes current assets as all those whose value can be realized in the current accounting period or held for trading, and the cash and cash equivalents. The USA GAAP recognizes the current assets as the cash and cash equivalents. It provides for waiver of the 1 year rule where the business entity has an operating cycle of longer than 12 months.
IAS 1.32 requires that all assets and liabilities, as well as income and expenses, not be offset unless allowed by a standard. USA GAAP requires that offsetting be permitted only in one of three exceptions: where the parties concerned owe each other amounts which can be financially determined, or there exists a right and written intention to set-off, or such a right is enforceable by law.
IFRS 5 and IAS1 are applicable for IFRS while the USA GAAP applies the SEC regulation S-X Rule 5-03, APB 30 and the SFAS 144. The former prescribes a format for the profit and loss account, such that the main categorizations are the nature of the expenses and their function. Although it does not, in essence, provide the specific format to be followed, it prescribes the items that must be included in the statement. The former accepts both single-step and multiple-step formats and there is no requirement for specific line items.
The IFRS requires that all matter of income and expense that are material must be disclosed, the amounts and the nature should be fully disclosed wither in the face or in the additional notes. The USA GAAP recognize a material event or form of transaction only if it is of an unusual nature or has an infrequent occurrence and requires that it be presented as a separate and specific component of the income section. These extraordinary items are completely prohibited by IAS 1.85, although IFRS 5.33 lows for items concreting discontinuation or held for sale items as post-tax.
They both have a similarity in that gains and losses that had been initially recognized as equity can be recycled to the income statement immediately they are realized. These items could be items that were available for sale investments, hedged items or foreign exchange losses concerning net investments in subsidiaries and main business entities. Under the US GAAP, pension and post retirement benefit plans can also be recycled upon realization.
Statement of Changes in Equity
IAS 1.96-101 and ARB 43 Ch. 2A, SFAS 130 and APB 12 are applicable. Under IFRS, the company should present either a statement of recognized income and expense or a statement of changes in equity whereas the USA GAAP requires a comprehensive statement that must be displayed with equal prominence to the other statements. While a septic format is not required in the latter, the net income should be displayed as a vital component of the comprehensive income.
The IFRS requires that certain items be split between the minority interest and the parent. For each component, the effects of previous year adjustments should be expressed. The USA GAAP requires that the income that can be attributed to the minority interests is a component of consolidated profit and loss account depicted as a deduction from the after-tax profits.
Cash Flow Statement
IAS 7, SFAS 95, 102 and 104 apply. The IFRS provides for no exemptions while the USA GAAP exempts for clearly defined benefit pension pans and other employee plans. The IFRS dictates that cash flow statements recognize cash movement in terms of short term liquid investments while the USA GAAP requires all the cash and cash equivalents where the latter are investments with original maturities verifiable for three months or less. In some versions of the IFRS, bank financing is considered a financing activity and therefore recognized but the USA GAAP recognizes back overdrafts only in the income statement.
They both have operating, investing and financing as the standard categories. On the cash flow under the IFRS cash receipts and payments may be recognized where the cash flow statement depicts the customers activates as opposed to those of the whole entity.
In essence, the aim of the IFRS is no different from that of the USA GAAP but the former has more detail and specificity when compared to the latter. The relevance applicability to an entity is a factor of the country and its financial governing policies, as well as the requirements of the state and the IRS. Inherently, the weakness of one standard is converged by a strength in the other but it is impossible to apply them both and hence, the enmity should seek to find the one with greeter relevance and reliability for its position and nature of business.
Related Free Compare and Contrast Essays
Most popular orders