Wordpress

IFRS Replacing GAAP?

Maria S. Wise | 103 | |

Generally Accepted Accounting Give Us Life Principles, also known as GAAP, is an ideology used by accountants in the United States and other parts of the world. It was one of the most widely used standards until IFRS emerged and started mixing its ideas with GAAP. GAAP controlled everything in the accounting world, from debit and credit to financial statements. GAAP was so successful because it was consistent; everybody used the rules set forth by GAAP. These made it easy for the Securities and Exchange Commission or SEC, to look into a company’s records and financial statements and know exactly where to look for what they needed. GAAP has been dwindling over the years to make room for a new standard International Accounting Standards Board created, International Financial Reporting Standard Page Papi.

Article Summary show

IFRS

International Financial Reporting Standard, or IFRS for short, has been becoming the new standard in Accounting. According to Steve Showerman, of the company of Deloitte, in his article IFRS in the United States: Challenges and Opportunities, over 12,000 public companies in over 100 countries have already switched to IFRS. This includes some companies in the European Union and other countries, such as Canada will be changing around later this year. The United States is slowly moving toward IFRS, but that still seems to be off in the long term. The new movement from GAAP to IFRS has caused financial reporting to differ between countries, and companies with offices in other countries can wind up paying the price.

What’s The Difference?

Generally Accepted Accounting Principles and International Financial Reporting Standards differ in a few ways, such as their financial statements; when taking the CPA exam, test-takers must recognize and perform the different financial statements. Another major difference is how the cost is allocated; with GAAP, all assets are distributed to price. But with IFRS, the allocation waits until there is a cost for the product before it breaks down the price.

With International Financial Reporting Standards, there is only First-in, First-out, weighted average, and specific identification for inventory purposes. This differs from Generally Accepted Accounting Principles because it uses all of these and Last-in First-out for inventory. IFRS uses a one-step method for impairment write-downs, compared to GAAP, which uses a two-step method. This makes write-downs more common with IFRS because it is only one step rather than two.

IFRS

What does this mean for Accountants?

These differences will affect everyone, from students and professors to accountants and experts in the field, for years. It will cause accountants to learn new financial statements and cause them to either go back to school or learn different techniques on their own. On the CPA exam, accountants will need to remember the old standard, Generally Accepted Accounting Principles, and they will also need to learn and know the new standard, International Financial Reporting Standard. With this, CPA test-takers must realize which bar to use in which circumstances and understand the differences between the two measures.

READ MORE :

Conclusion

International Financial Reporting Standard is the new standard that is sweeping the globe, and according to Janice Patricio, a partner at KPMG and a leader in the movement for IFRS, the Securities and Exchange Commission has made a compliance date for all companies to move from GAAP to IFRS between the years 2014 to 2016. The SEC also said it would comply with the global financial framework. In Why Switch to IFRS From GAAP?, Marquita Jennings explains that on August 27, 2008, the SEC had proposed making a road map for people to follow while switching from Generally Accepted Accounting Principles to International Financial Reporting Standards.

And on November 14, 2008, the SEC did just that, producing a 165-page document serving as a road map for people while switching from GAAP to IFRS. This will make it easier to make the change when all companies must comply and people are unsure how to switch to IFRS. However, people are not sure when the change from GAAP to IFRS is coming, either as early as 2014 or as late as 2016; we can all be sure that the transition to IFRS is coming to the United States.

Recommended for You