Difference between GAAP & IFRS

Without accounting and financial reporting standards and principles , businesses could easily skew and distort their financial results to make themselves look more attractive and successful to the investors and general public. It would also be much harder and difficult to compare financial performance of different companies and businesses

Here is where International Financial Reporting Standards (IFRS) and generally accepted accounting principles (GAAP) and I) come in. These two sets of guidelines, principles and accounting framework—one International, and one American, which most companies and businesses follow when preparing their financial statements and other financial reports . With these accounting and financial reporting standards in place, people can be sure businesses are accurately reporting their finances and accounting results so that they can make informed decisions.

 IFRS

The International Financial Reporting Standards (IFRS) are a set of accounting and reporting standards produced by the International Accounting Standards Board (IASB). The International Financial Reporting Standards (IFRS) govern how businesses and corporations around the world will prepare  their financial statements. Unlike GAAP, the IFRS does not specify how financial statements should be created, but rather gives suggestions to standardise standards and make the accounting process consistent around the world.

The International Financial Reporting Standards (IFRS) are being used throughout the European Union, South America, and in many countries of Asia and Africa.

 GAAPs

The GAAPs is a set of standards that US businesses and  corporations must adhere to when preparing their annual financial statements. The GAAPs take an authoritative approach to the accounting process, ensuring that financial statements produced by businesses and other corporate entities should be uniform and consistent. It enables investors to have comparison of financial statements of multiple companies in order to make informed investment decisions.

IFRS

GAAP

Stands for
International Financial Reporting StandardGenerally Accepted Accounting Principles
Developed by
International Accounting Standard Board (IASB)Financial Accounting Standard Board (FASB)
Adopted by
Globally adopted in around 144 countriesOnly adopted in the US
Based on
PrinciplesRules
Inventory Methods allowed
IFRS allows only FIFO (First In First Out) inventory method for valuation of inventoriesGAAP uses both FIFO (First In First Out) and LIFO (Last In First Out) method of inventory valuation
Inventory Reversal
IFRS allows inventory write down reversalGAAP does not allow inventory write down reversal
Income Statements
In IFRS, extraordinary items are not segregated and are included in the income statementIn GAAP, the extraordinary items are segregated and are shown below net income in the income statement
Valuation of Fixed Assets
IFRS uses a revaluation model for valuation of fixed assetsGAAP uses a cost model for fixed asset valuation
Cost of Development
Development costs under IFRS can be capitalised, provided certain conditions are metDevelopment costs cannot be capitalised in GAAP, it is always treated as an expense

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Usman Rasheed & Co Chartered Accountants is a leading financial advisory and audit firm in Pakistan, having offices in Islamabad, Quetta, Lahore, Karachi, Peshawar & Gilgit. The firm is providing Audit, Tax, Corporate, Financial, Business, Legal & Secretarial Advisory services and other related assistance to local and foreign private, public and other organizations working in Pakistan

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