American vs. International Financial Reporting Standards

Subject: Finance
Pages: 2
Words: 302
Reading time:
< 1 min

Riahi says the U.S. GAAPS are rule-based, but the IFRS is principle-based. This can be seen due to the differences seen in the treatment of some transactions. In the U.S, the areas of discussions can be interpreted or clarified by the board, but the IFRS can only give guidance and has clear rules. Some of the key areas where there are differences between IFRS and U.S. GAAP include the following accounting treatment. In the consolidation process, the IFRS prefers a control model while the GAAP prefers a risk and rewards model. In the U.S., the income statement includes extraordinary items, unlike the case with the financial reporting standards. In the determination of earnings per share, the interim dividends are not included, unlike the case with the United States.

The GAAPS considers development costs as capitalization while the reporting standards term them as expenses. Another notable difference between the two is in payment of share-based payments, where they are classified as assets by the IFRS and liabilities by the U. S GAAPS. The IFRS gives no specific guidance in recognition of payroll expenses, but the obligating event only requires recognition. The recognition of deferred taxes is on the basis of functional currency, and the US GAAPS does not recognize the deferred tax. The use of different bases of accounting is to ensure the fair presentation of the information to users of such accounting information. The use of different bases of accounting is due to the fact that the different kind of statements has different needs in giving information. The users are also different and have different needs in such statements. The major components of these statements are different, for instance, the type of accounts, expenses, and the basis of accounting.