Financial Acounting Standards Board FASB

Generally accepted accounting principles refer to a common set of accepted accounting principles, standards,
and procedures that companies and their accountants must follow when they compile their financial
statements.
International Accounting Standards Board IASB
International Financial Reporting Standards (IFRS) are a set of international accounting standards, which state
how particular types of transactions and other events should be reported in financial statements
GAAP is rules-based and IFRS is principles-based.
If a company distributes its financial statements outside of the company, GAAP must be followed. If a
corporation's stock is publicly traded, financial statements must also adhere to rules established by the U.S.
Securities and Exchange Commission
GAAP addresses such things as revenue recognition, balance sheet, item classification, and outstanding share
measurements.
Basically, IFRS guidelines provide much less overall detail than GAAP. Consequently, the theoretical framework
and principles of the IFRS leave more room for interpretation and may often require lengthy disclosures on
financial statements

Perhaps the most notable specific difference between GAAP and IFRS involves their treatment of inventory. IFRS
rules ban the use of last-in, first-out (LIFO) inventory accounting methods. GAAP rules allow for LIFO. Both
systems allow for the first-in, first-out method (FIFO) and the weighted average-cost method. GAAP does not
allow for inventory reversals, while IFRS permits them under certain conditions

When a company holds investments such as shares, bonds, or derivatives on its balance sheet, it must account
for them and their changes in value. Both GAAP and IFRS require investments to be segregated into discrete
categories based on asset type. The main differences come in recognizing income or profits from an investment:
under GAAP it's largely dependent on the legal form of the asset or contract; under IFRS the legal form is
irrelevant and only depends on when cash flows are received.

R&D (Research & Development) is a large expense in many industry sectors. Under GAAP R&D expenses are
booked as they occur. This is true under IFRS as well, however, IFRS also requires certain R&D expenditures to be
capitalized (e.g. some internal costs like prototyping). Under IFRS, costs in the research phase are expensed as
incurred. Costs in the development phase may be capitalized based on certain factors. On the other hand, US
GAAP generally requires immediate expensing of both research and development expenditures, although some
exceptions exist.

With regards to how revenue is recognized, IFRS is more general, as compared to GAAP. The latter starts by
determining whether revenue has been realized or earned, and it has specific rules on how revenue is
recognized across multiple industries.
The guiding principle is that revenue is not recognized until the exchange of a good or service has been
completed. Once a good’s been exchanged and the transaction recognized and recorded, the accountant must
then consider the specific rules of the industry in which the business operates.
Conversely, IFRS is based on the principle that revenue is recognized when the value is delivered. It groups all
transactions of revenues into four categories, i.e., the sale of goods, construction contracts, provision of services,
or use of another entity’s assets. Companies using IFRS accounting standards use the following two methods of
recognizing revenues:
Recognize revenues as the cost that can be recovered during the reporting period
For contracts, revenue is recognized based on the percentage of the whole contract completed, the estimated
total cost, and the value of the contract. The amount of revenue recognized should be equal to the percentage
of work that has been completed.
When preparing financial statements based on the GAAP accounting standards, liabilities are classified into
either current or non-current liabilities, depending on the duration allotted for the company to repay the debts.
Debts that the company expects to repay within the next 12 months are classified as current liabilities, while
debts whose repayment period exceeds 12 months are classified as long-term liabilities.
However, there is no plain distinction between liabilities in IFRS, so short-term and long-term liabilities are
grouped together.

The way a balance sheet is formatted is different in the US than in other countries. Under GAAP, current assets
are listed first, while a sheet prepared under IFRS begins with non-current assets.
The two standards also dictate different approaches to ordering categories on the balance sheet. GAAP calls for
accounts to be listed in the order of liquidity—or how quickly and easily they can be converted to cash. The
items are arranged in descending order (most liquid to least liquid): current assets, non-current assets, current
liabilities, non-current liabilities, and owners’ equity.
Under IFRS, the order is reversed (least liquid to most liquid): non-current assets, current assets, owners’ equity,
non-current liabilities, and current liabilities.

GAAP prescribes that interest paid and interest received or Dividends should be classified as operating activities,
while international standards are a bit more flexible. Under IFRS, a firm can choose its own policy for classifying
interest based on what it considers to be appropriate. Interest paid can be placed in either the operating or
financing section of the cash flow statement, and interest received in the operating or investing sections.

When an asset experiences a reduction in value due to market or technological factors—which in turn, causes it
to fall below its current value in a company’s account—it’s classified as a loss on impairment. While impairment
is often permanent, an asset’s value can increase after this loss has been recognized if the elements that caused
it no longer exist.

GAAP and IFRS handle this ensuing rise in value differently. The rules of GAAP do not allow for an asset’s value to
be written back up after it’s been impaired. IFRS standards, however, permit that certain assets can be
revaluated up to their original cost and adjusted for depreciation