Significant Differences between US GAAP and IFRS

The first difference arises in the required financial reporting periods. For US GAAP, the financial instruments are presented in single financial years while public trading companies are obligated to adhere to the requirements put forth by SEC so that their respective statement of financial position reflects two most current years of operations. The other financial statements like the cash flow statement and statement of consolidated income are expected to cover a three-year financial period that ends on the date depicted in the statement of financial position. On the other hand, in respect to IFRS information that is subject to the comparison is presented to stakeholders in addition to the records of previous financial periods reported in the various financial instruments (Barth, Landsman, Lang and Williams 2012).

The second difference arises in the manner in which both the balance sheet and income statement should be designed. For US GAAP, there are no set guidelines on the manner in which both the statement of financial position as well as the income statement should be designed. However, it is ascertained that public companies adhere to S-X layout. On the other hand, in respect to IFRS, the IAS 1does not postulate exact layout to be used in designing these financial instruments but provides a directive on the minimum number of items. Notably, this number of minimum items is considered to be less rigid in comparison to stipulations put forth under S-X layout (Ernst and Young 2011).

The third difference arises in the mode of classifying deferred tax assets and liabilities in the statement of financial position of an entity. For US GAAP, both current and non-current models of deferred tax assets and liabilities classification are identified. Furthermore, classification of this item assumes the nature of the related asset or in other cases liabilities involved. On the other hand, in respect to IFRS all of the amounts of deferred tax assets or liabilities are classified as non-current in the statement of financial position of an entity (Ernst and Young 2011).

Fourth, there is a difference in the manner in which income-statement assume classification of different expense items. For US GAAP, the Securities Exchange Commission directs expenses to be identified in their respective functionalities while for IFRS business entities are allowed to present their expense items in terms of either function or nature (Ernst and Young 2011). In case functionality of the expense is determined as a formidable path in order to present expense items it is required that specific disclosures of nature of the aforementioned expense items are to be included within the notes section of the financial statements (Forsbe, Kraft and Forsbe 2009).

Fifth, US GAAP does not identify with the need of preparing and presenting a third balance sheet to the relevant stakeholders. On the other hand, IFRS identifies the need to prepare and disclose a third balance sheet with the additional notes. The presentation of the third balance sheet is required at the beginning of the financial data comparative period whenever new accounting concepts and policies are introduced into the preparation activity (Ernst and Young 2011).

Sixth, there is the difference in the manner in which income statements classify discontinued operations. For US GAAP, classification of discontinued business activities assumes components which are held for either sale or disposal while IFRS classification for discontinued business activities are classified in respect to either a sale or disposal provided there is existence of a key line of business or geographic locations in that matter (Ernst and Young 2011).

Recognition and Measurement Rules: Fair Value Option for Financial Assets and Liabilities

In respect to US GAAP, measurement approach is adopted whenever it is ascertained that fair value of assets is used. Furthermore, the fair value of an asset is the price that should be received to the owner when the asset is sold or the price that is paid to a creditor in the case of liability transfer at the exact measurement date. It should be noted that fair price is considered to be an exit price of a transaction and thus, it may significantly differ with entry transaction-price of an asset or liability. On the other hand, IFRS measures fair value as the exact amount that could be used in exchange activities or whenever the amount is used to settle liabilities between enlightened and wiling persons. It is stated that within the process of inception the exact transaction price is determined to be the fair value (Ernst and Young 2011).

In respect to the recognition of fair values for financial assets, US GAAP ensures efficient acquisition of the asset under consideration. This means that recognition for assets are made effective whenever it is ascertained that the financial assets have been received legally by the rightful owner. On the other hand, under the IFRS recognition of financial assets ensures that transfer of both risks as well as rewards of the financial asset has been passed on to the rightful owner. A legal isolation test is required in order to ascertain that the rightful owner has assumed control responsibility of financial assets.

Get 15% off your 1st order

Use quality15 discount code

Order NOW