Ifrs Vs Gaap

Comparing IFRS to GAAP Essay

Cordell Bess and Jovan Corbin

ACC/291

March 4 2016

Lewis Bryan

Comparing IFRS to GAAP Essay

Introduction

Accounting is an art that requires patients and diligence to perform its duties. For every country to be able to regulate an agreed upon set of laws may never come about. IFRS and GAAP are the two forces that collide with this theory every day and have been for years. In this article we will discuss a few similarities and differences amongst these two organizations. We will review the steps that both organizations have taken to move towards fair value measurement for financial instruments. We will also go over component depreciation, revaluation of plant assets, differences between development expenses and development costs and also contingent liability. Everything we will discuss truly affects the idea of the two groups agreeing on universal set of rules when it comes to the principles of accounting.

FASB vs IASB

        Under both organizations companies are required to document their assets at either book value or fair value unless the situation calls for otherwise. Each group requires companies to inform the public the information regarding the value measurement practices they are using in the notes of the financial statements. One of the scapegoats for many accounting scandals such as Enron and WorldCom scandals was the "rules-based" US Generally Accepted Accounting Principles (GAAP). Fair value measurements allow anyone using the financial statements an accurate snap shot on the value a company’s assets.  An unwritten rule amongst both organizations is that all assets under the same category will receive the same valuation treatment. Now one of the notable differences between the two is the value of receivables, IRFS uses a two-tiered method that analyzes individual receivables, as well as, looks at receivables as a whole to determine if there is any impairment. IFRS is also a principle-based system that can usually clear any issue that may appear unclear, while GAAP is a more rule-based system that may leave doubts at times. If Enron accountants had been accountable under the economic control principle as stated in IAS 27, a principles-based standard (PBS), the SPEs would have been consolidated (Bhimani, 2008). Component Depreciation

        When we look at component depreciation, it is the method in which a part or section of a property is individually depreciated at different rates.  This type of depreciation takes place when special assets have had fundamentally different parts, seeing that the parts are different they may have to take a different approach as it relates to whatever is being depreciated.  This component depreciation, under IFRS is to be applied if the different parts of the component come with beneficial patterns.  This provides a clear image of the assets beginning value.