Digital Marketing

Generally Accepted Accounting Principles Against International Financial Reporting Standards

What is globalization? Globalization is the act of expanding to other or even all areas of the world from the country of origin. Like its very broad definition, globalization can be the basis for discussing a wide range of topics. To cut a bit, I will focus primarily on Generally Accepted Accounting Principles (GAAP) compared to International Financial Reporting Standards (IFRS). I will draw attention to some of the differences between IFRS and GAAP, as well as mention some of the similarities between the two accounting standards. In addition, I will discuss several of the advantages and disadvantages of converting the United States from GAAP to IFRS.

There are two main accounting systems around the world, the General Accounting Principles, also known as GAAP, and the International Financial Reporting Standards, also known as IFRS. According to The Business Dictionary, “GAAP provides objective standards for judging and comparing financial data and its presentation, and limits the freedom of directors to display an unrealistic picture through creative accounting” (4). With this system come both benefits and negatives. One benefit provided by GAAP is that the system is rule-based, which means there is less room for exceptions (2). With this aspect, it is easier to produce correct statements while avoiding errors and mistakes. An additional advantage is that GAAP separates its different entities into different parts. As for the disadvantages, the main and debatable the most important is the non-existent universal way of making the accounting standard. As a result, it becomes more difficult to compare returns and records with those of other countries.

Generally Accepted Accounting Principles and International Financial Reporting Standards differ from each other but also have similarities. One difference is that with respect to consolidation, GAAP tends to lean towards the risk and reward system, while on the other hand; IFRS favors more of a control model (2). There is another difference between the balance statements of each standard. When it comes to GAAP, there is no specific design for balance sheets and financial statements (1). Contrary to GAAP standards, IFRS has a strict approach to accounting for these summaries and reports (1). They implement this approach by requiring a list of minimum line items to be present in declarations. Another way the two accounting principles vary is that while they both use the First In First Out (FIFO) method, IFRS strictly prohibits the use of the Last In, First Out (LIFO) method, which GAAP allow companies to have a choice. between LIFO and FIFO (2). Finally, a significant difference that needs to be addressed is the well-known fact that GAAP is used only in the United States, while IFRS is used in more than 133 countries (3). One similarity that exists between these two accounting principles is the mutual incorporation of the following into your financial statements: the balance sheet, the income statement, changes in equity, the cash flow statement, and footnotes.

In recent years there has been talk of the conversion of the United States from Generally Accepted Accounting Principles to International Financial Reporting Standards (5). The adaptation of IFRS by the United States will result in both advantages and disadvantages. A resulting benefit would be the ability for foreign companies to relate much more easily to current information within the United States. Another advantage is that IFRS is already universally known, which effectively makes it friendlier and more helpful so that other nations do not need to learn new systems. However, with all the advantages come some disadvantages. One of the main disadvantages is that IFRS does not have the level of security that GAAP does (5). Without adequate protection, there is more room for fraudulent financial information to occur. Another drawback of converting to IFRS is that people are not sure how they feel about something new. Some companies do not know if the change will be worth it for their business.

In conclusion, GAAP vs IFRS is a much discussed talk about globalization. These two accounting systems have their positives and negatives. Earlier, I defined what GAAP and IRFS were, and gave some comparisons and differences about them. I also gave various advantages and disadvantages of the two frameworks. Lastly, I provided the positives and negatives of the conversion of the United States to IFRS from GAAP.

Cited works

1. Ernst & Young. US GAAP versus IFRS: Basic Concepts. UK. Print.

2. Forgeas, Remi. “Are IFRS so different from US GAAP?” IFRS Resources. AICPA, nd Web. Apr 13 2014. .

3. “GAAP vs IFRS”. Difference and comparison. Diffen, nd Web. Apr 13 2014.

4. “Generally Accepted Accounting Principles (GAAP)”. Business Dictionary. Web Finance, nd Web. Apr 13 2014.

5. Ernst & Young. US GAAP versus IFRS: the basics. United Kingdom, 2012. Printing.

Leave a Reply

Your email address will not be published. Required fields are marked *