The United States uses accounting standards developed by the Financial Accountin

Question

The United States uses accounting standards developed by the Financial Accounting Standards Board (FASB) known as the generally accepted accounting principles (GAAP). This system relies on rules and regulations and thus is said to be a rules-based system. The rest of the world follows accounting standards developed by the International Accounting Standards Board (IASB) known as the international accounting financial reporting standards (IFRS). This system relies more on principles than rules. There is a movement to have one global standard, which would combine GAAP and IFRS.

What are the differences between GAAP and IFRS? How does each standard handle research and development costs? What issues might arise with combining a rules-based with a principles-based system?

Explanation / Answer

IFRS stands for Internation financial reporting standard and GAAP means generally accepted accounting principle.

For intangibles , In IFRS it is considered only when an assest have a future economic value and have reliabiity but in GAAP it is considered at fair value.

For inventory cost :- In IFRS , LIFO method is not allowed and in GAAP ,LIFO and FIFO methods can be used

For write downs:-  if any inventory is mentioned then it cannot be reversed in GAAP and for IFRS , It can be reversed.

These two have different methods of accounting , so comobing will be a chiatic condition however one can have a system having some of the good points from both the system.

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