In 2008, the Securities and Exchange Commission (SEC) issued a road map for the United States (US) to implement International Financial Reporting Standards (IFRS) that would eventually lead to the dissolution of US Generally Accepted Accounting Principles (US GAAP) (Cox 2008). US GAAP is rules based system of accounting that contains over 25,000 detailed pages of guidance, whereas IFRS is a principles based system of accounting that contains 2,500 pages of guidance. IFRS allows accountants to exercise professional judgment when making many decisions. This paper will compare and contrast US GAAP with IFRS on Intermediate Accounting Topics.
In the past, Accounting standards in the US were set by the American Institute of Certified Public Accountants (AICPA). However in 1973, the Financial Accounting Standards Board (FASB) began writing and issuing US GAAP (FASB.org 2012). FASB’s Accounting Standards Codification (ASC) is the source of authoritative US GAAP for nongovernmental entities (DATABASE). As many companies began operating globally the need for consistent financial reporting standards arose. To meet this need, the International Accounting Standards Committee (IASC) was established in 1973 in London, England (Flesher 2008). The main goal of the IASC was to formulate International Accounting Standards (IAS) that could be used for large publicly traded companies, but progress was limited. In 2001, this committee was replaced by the International Accounting Standards Board (IASB). The IAS also switched to the use of International Financial Reporting Standards (IFRS) with the creation of the IASB (Jei-Fang Lew 2005). The introduction of the Euro served as a catalyst for these changes and created a heightened sense of urgency for implementation. Although, the US participated in forming IASC and continues to be a member of the IASB today, there was never any real urgency to transition until the SEC issued the roadmap.
Financial Statement Presentation
IFRS and US GAAP both require preparation of a set of financial statements. The preparation of these statements has subtle differences. One of the primary differences is how these statements are titled.
The financial statements prepared according to IFRS consist of: statement of financial position for the ending of the period, statement of comprehensive income, statement of changes in equity, statement of cash flows, notes to the financial statements, and statement of financial position for the beginning of the period (when there are prior year adjustments).
The financial statements prepared according to US GAAP consist of: The balance sheet, the income statement, statement of comprehensive income, statement of changes in equity, statement of cash flows, and notes to financial statements.
Prior year comparison.
Income Statement and Statement of Comprehensive Income
The income statement generally refers to the calculation of the revenues generated less...