Essay on Comparing IFRS to GAAP
Comparing IFRS to GAAP Essay
In the Accounting industry, there are various principles and guidelines by which financial accountants, analysts, and organizations need to abide by. The International Accounting Standards Board (IASB) issues standards (IFRS) that have been adopted by the United States and several countries outside of the U.S. (Kimmel, Weygandt & Kieso, 2010). The IFRS along with Generally Accepted Accounting Principles (GAAP), professionals in the accounting industry use these guidelines as a baseline on which accounting practices are built upon. These standards are governed by the Securities and Exchange Commission (SEC) which ultimately …show more content…
Imagine an oil company that was involved in an accidental oil spill in the Pacific Ocean. An example of a contingent liability would be potential fines imposed by the Union for environmental violations. The company may not know the extent of the fines yet, but they should be disclosed as a contingent liability in the notes. Because the fines can be predicted, it is necessary to report the information to users of the financial statements.
IFRS 10-3 Similarities and Differences in Accounting Liabilities
The basic principles of accounting for liabilities between GAAP and IFRS nearly identical, but there are several minor differences. On the balance sheet, GAAP requires liabilities be reported in order of liquidity, while IFRS requires reverse order of liquidity. When it comes to reporting interest expenses, GAAP permits both the effective interest rate method and the straight-line method; however IFRS will only allow the effective interest rate method. Furthermore, IFRS has special rules for contingent liabilities, which is not a requirement under GAAP.
In the grand scheme, the differences between IFRS and GAAP are fairly small. Each has specific requirements related to the reporting of assets and liabilities, which can result in slightly different financial results. Both FASB and IASB are working actively to modernize their accounting rules with changes