In Accounting and auditing, there are two terms which confuse sometimes. We have tried to give some major differences between GAAP and IFRS.
Difference between GAAP and IFRS
GAAP( also known as US GAAP) and IFRS differ in several ways:
GAAP:- Generally Accepted Accounting Principles.
IFRS:- International Financial Reporting Standards
GAAPs:- They are compulsorily applied by Public Limited Companies registered in the US and trading in the stock market
IFRS:- Accepted and applicable in more than 140 states inclusive of common Wealth States.
- INVENTORY VALUATION.
GAAP:- Accept usage of LIFO as a method of stock valuation.
IFRS:- Doesn’t allow the LIFO method of stock valuation.
- INVENTORY REVALUATION REVERSALS.
Both GAAP and IFRS allow revaluation of stock under certain market circumstances. When the market normalizes, IFRS allows reevaluation reversals while GAAP doesn’t allow for such Reversals.
- ASSET REVALUATION.
GAAP:- GAAP doesn’t allow for revaluation of Fixed asset especially upward valuation of the Assets which leads to the creation of revaluation reserve.
IFRS:- Allows reevaluation Fixed Assets and creation of reevaluation reserve.
GAAP:- Prepared by FASB (Financial Accounting Standards Board.)
IFRS:- Prepared by IASB (International Accounting Standards Board.)
- CAPITALIZATION OF DEVELOPMENT COSTS.
GAAP:- Doesn’t allow for capitalization of Development costs.
IFRS:- Allows capitalization of development costs.
According to codification done in 2008 GAAPs were summed up to 90.
IFRS is rapidly changing with the most recent major change happening in 2008 where new IFRS 17- Accounting for Insurance Contracts was issued and given an effective date of 1 January 2021