BUSINESS ACCOUNTING ASSIGNMENT

DIFFERENCE BETWEEN GAAP (Generally Accepted Accounting

Principle) AND (International Financial Reporting Standards)

INTRODUCTION

 GAAP- It is a collection of commonly-followed accounting rules and

standards for financial reporting. The acronym is pronounced "gap."

GAAP specifications include definitions of concepts and principles, as well as

industry-specific rules. The purpose of GAAP is to ensure that financial reporting
is transparent and consistent from one organization to another.

 IFRS - International Financial Reporting Standards (IFRS) is a set of

accounting standards developed by an independent, not-for-profit
organization called the International Accounting Standards Board
(IASB)
DIFFERENCE BETWEEN GAAP AND IRFS

BASES OF DISTINCTION GAAP IFRS

1. INVENTORY METHODS GAAP prefers the use of the LIFO
(Last In First Out) method for
estimating inventory.
2. VALUING FIXED ASSET As per the GAAP, a company should
show fixed asset at its cost, net of
any accumulated depreciation.
3. INTANGIBLE ASSETS Under GAAP, intangible assets – such
as research and development or
advertising costs – are recognized at
the fair market value.  value
4. EARNING-PER-SHARE Under GAAP, however, the
calculation takes into account
averages of the individual interim
period
5. INVENTORY REVERSAL Under GAAP, if the market value of
an asset increases, the company
can’t reverse the amount of write-
down.
6. INCOME STATEMENTS Under GAAP, a company shows
extraordinary or unusual items
below the net income section of
the income statement. 
7. CONSOLIDATION GAAP prefers a risks-and-rewards
model.
 IFRS however does not approve this
method as LIFO does not reveal the
actual flow of inventory in most
cases, resulting in unusually low-
income levels.
Under IFRS, a company can
revalue fixed assets. Therefore, the
value on the balance sheet increases
IFRS takes into consideration the
future economic benefit of the
intangible asset when assessing its
While calculating EPS (earnings per
share) under IFRS, the company does
not average the individual interim
period calculations
under IFRS, a company can reverse
the amount of write-down. We can
say that GAAP is conservative when
it comes to the inventory reversal
and refrains from reflecting any
positive changes in the marketplace
 Under IFRS, such items come in the
income statement.
while IFRS is in favor of a control
model.

Both GAAP and IFRS have been running for decades. Therefore, it is no surprise
that experts are in discussion to converge the guidelines and principles of two,
making it simpler for the world to understand and follow the basic set of
guidelines. This work towards convergence is ongoing for the past many years and
still requires a lot of effort as is evident from the differences above.