Accounting is integral to all types of companies, organizations, and agencies worldwide. It is important to follow certain accounting standards and principles to maximize the benefits of accounting and get the required results.
These standards are important to setting the internal accounting policies and practices and ensuring efficient accounting procedures.
Moreover, accounting standards significantly improve the transparency of organizations by promoting better financial reporting procedures. When organizations follow such global standards, they can also maintain thorough financial records and sail through the audit process.
Nowadays, accounting standards and principles are no longer specific to any particular country or area. Instead, most organizations worldwide use International Financial Reporting Standards (IFRS) as the fundamental accounting standard.
Most of the audit firms in Singapore also follow IFRS. With time, some companies, especially in the USA, have also started to prefer US GAAP.
Since IFRS and US GAAP are two of the most popular accounting standards in the world, you need to be familiar with them in detail. Keep reading to learn the differences between US GAAP and IFRS and to determine which one is a better option.
Overview of IFRS
A worldwide accounting framework is referred to as International Financial Reporting Standards (IFRS). It requires businesses to arrange and report financial data following predetermined guidelines.
Similarly, IFRS serves as the principal accounting standard for financial reporting for most businesses. It involves several IAS or IFRS-related accounting rules.
In more than 140 nations, IFRS is now the sole financial reporting standard. It encourages uniformity, openness, and comparability among businesses from those nations. The same regulations apply to financial reporting for businesses that adhere to these criteria.
However, since IFRS is founded on principles, there may be considerable opportunity for varying interpretations. However, it offers a framework for reliably reporting financial data.
An Overview of GAAP
The widely used accounting rules and practices are generally accepted accounting principles (GAAP). These requirements were established by the Financial Accounting Standards Board (FASB).
Initially, these were only applicable to US companies. However, GAAP standards have been updated with time to facilitate businesses and organizations in keeping track of their financial data in accounting records.
GAAP’s main goal is to enhance the uniformity, comparability, and clarity of financial information. It contributes to the broad norms and principles that regulate the accounting industry.
Similar efforts are made to standardize terminology, procedures, and assumptions in accounting. These regions become uniform with GAAP use since it pertains to all businesses. However, its reach is quite limited.
Differences between US GAAP and IFRS
The following are the major differences between US GAAP and IFRS:
| Differences | Description |
|---|---|
The flexibility of the framework | Some accountants consider the rules-based method used by IFRS to be superior. In this method, IFRS creates new standards using the conceptual framework. The Accounting Standard Board's Framework served as the basis for this framework. Similarly, it aids the IASB in improving standards based on the conceptual foundation. For instance, if you contact a professional audit firm in Singapore, the professionals will be able to make rules specific to a company according to the framework of IFRS. However, GAAP establishes an accounting framework using a rules-based methodology. Compared to the IFRS's principles-based methodology, this approach is more stringent. Similar to that, GAAP stipulates accounting rules that businesses must adhere to. The "Cookbook" technique is another name for this strategy. Most specialists agree that this strategy is inflexible and does not allow for flexibility. |
Emphasis on Investors | Focusing on investors is one of the main differences between IFRS and GAAP. IFRS promises financial statements that are more precise, timely, and comprehensive. Similar to how it guarantees investors that this knowledge would inform their judgments. Consequently, creating the reporting requirements helps novice and small investors. By removing the requirement to comprehend the fundamental ideas, IFRS improves information comparability. |
Final Takeaways
Companies have easier access to international markets and investments thanks to IFRS. The process of mergers and acquisitions often presents several difficulties.
Aligning the accounting procedure with the competing businesses is one of them. These difficulties disappear, however, if businesses adopt IFRS. IFRS has been widely adopted in the EU and other nations.
Additionally, investors are more inclined to favour investing in businesses that use IFRS. GAAP may be useful in this area as well.
But US citizens are the only ones who can invest in such businesses. Before investing in US-based enterprises, foreign investors need to get a fundamental grasp of GAAP.
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