International Accounting Research Paper
Generally accepted accounting principle (GAAP) are the guidelines and practices that a company
is required to use in recording and reporting the accounting information in its audited financial
statements. GAAP define accepted accounting practices at a particular time and provide a
standard by which to report financial results. They are like laws and are the rules that must be
followed in financial reporting. The evolution of GAAP took place over many years and
involved several accounting policy making bodies, including the Financial Accounting Standards
Board (FASB), Accounting Principles Board (APB), American Institute of Certified Public
Accountants (AICPA), and Securities and Exchange Commission (SEC) (Nikolai & Bazley).
International Financial Reporting Standards (IFRS) on the other hand are a set of accounting
standards developed by the International Accounting Standards Board (IASB) that is becoming
the global standard for the preparation of public company financial statements. Although
approximately 90 countries have fully conformed to IFRS as promulgated by the IASB and
include a statement acknowledging such conformity in audit reports, more than 120 nations and
reporting jurisdictions require IFRS for domestic listed companies. (“AICPA | Www.IFRS.com :
IFRS FAQs”)
International Accounting Standards Board and the USA Financial Accounting Standards Board
have been working together since 2002, in order to achieve convergence of IFRS and General
Accepted Accounting Principles. The US Securities and Exchange Commission removed in 2007
the requirement for non-US companies registered in the United States to reconcile their financial
reports with US GAAP. In addition to that, the SEC also published a proposed roadmap on
acceptance of IFRSs for domestic US companies (“Convergence Between IFRSs and US
GAAP”).
One of the major differences between IFRS and GAAP lies in the conceptual approach: U.S.
GAAP is rule-based, whereas IFRS is principle-based. U.S. GAAP is more focused on the
literature whereas under IFRS, the review of the facts pattern is more thorough (“Is IFRS That
Different From U.S. GAAP?”).
Inventory – Unlike the first-in, first-out (FIFO) method and a weighted average cost formula,
IFRS does not allow the use of LIFO as a method for determining inventory cost. While U.S.
GAAP allows for write-down to be made using categories of items, IFRS Inventory write-downs
should generally be made on an item-by-item. IFRS allows inventories that were previously
