![]() ![]() While the approaches under GAAP and IFRS share a common framework, there are a few notable differences. Investment property is initially measured at cost, and can be subsequently revalued to market value. IFRS includes the distinct category of investment property, which is defined as property held for rental income or capital appreciation. GAAP allows for component depreciation, but it is not required. Any separate components of an asset with different useful lives are required to be depreciated separately under IFRS. Under IFRS, these same assets are initially valued at cost, but can later be revalued up or down to market value. GAAP requires that long-lived assets, such as buildings, furniture and equipment, be valued at historic cost and depreciated appropriately. ![]() IFRS has no specific guidance for software. If the software will only be used internally, GAAP requires capitalization only during the development stage. For software that will be used externally, costs are capitalized once technological feasibility has been demonstrated. Under GAAP, development costs are expensed as incurred, with the exception of internally developed software. These criteria include consideration of the future economic benefits. Internal costs to create intangible assets, such as development costs, are capitalized under IFRS when certain criteria are met. GAAP takes a more conservative approach and prohibits reversals of impairment losses for all types of assets. When conditions change, IFRS allows impairment losses to be reversed for all types of assets except goodwill. Under GAAP, revaluation is prohibited except for marketable securities.īoth standards allow for the recognition of impairment losses on long-lived assets when the market value of an asset declines. ![]() This revaluation may be either an increase or a decrease to the asset’s value. IFRS allows revaluation of the following assets to fair value if fair value can be measured reliably: inventories, property, plant & equipment, intangible assets, and investments in marketable securities. Inventory valuation may be more volatile under IFRS. Under GAAP, reversal of earlier write-downs is prohibited. However, if the market value later increases, only IFRS allows the earlier write-down to be reversed. Using the LIFO method may result in artificially low net income and may not reflect the actual flow of inventory items through a company.īoth methods allow inventories to be written down to market value. However, GAAP also allows the Last In, First Out (LIFO) method, which is not allowed under IFRS. 2014-09 (Topic 606) and the corresponding IFRS standard, IFRS 15, share a common principles-based approach.īoth GAAP and IFRS allow First In, First Out (FIFO), weighted-average cost, and specific identification methods for valuing inventories. For example, the recent GAAP standard for revenue from contracts with customers, Auditing Standards Update (ASU) No. However, convergence projects between FASB and IASB have resulted in new GAAP and IFRS standards that share more similarities than differences. Under GAAP, companies may have industry-specific rules and guidelines to follow, while IFRS has principles that require judgment and interpretation to determine how they are to be applied in a given situation. GAAP tends to be more rules-based, while IFRS tends to be more principles-based. and overseas may have more complexities in their accounting. ![]() GAAP, on the other hand, is only used in the United States. IFRS is used in more than 110 countries around the world, including the EU and many Asian and South American countries. Let’s look at the 10 biggest differences between IFRS and GAAP accounting. GAAP is established by the Financial Accounting Standards Board (FASB). Generally Accepted Accounting Principles (GAAP) is only used in the United States. International Financial Reporting Standards (IFRS) – as the name implies – is an international standard developed by the International Accounting Standards Board (IASB). We live in an increasingly global economy, so it’s important for business owners and accounting professionals to be aware of the differences between the two predominant accounting methods used around the world. ![]()
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