Financial Reporting Standards (IFRS vs US GAAP) #
| Topic | U.S. GAAP | IFRS | Similarities | Example |
|---|---|---|---|---|
| Purpose of Framework | The FASB framework is lower in the hierarchy and isn’t prioritized if no standard exists. | Management must follow the IASB framework if no standard or interpretation is available. | Both assist in developing and understanding standards. | In the U.S., if a specific standard isn’t available, management might not refer to the FASB framework, while in Europe, management must use the IASB framework for guidance. |
| Objectives of Financial Statements | Provides different objectives for business and non-business entities. | Gives one objective for all business entities. | Both aim to provide relevant information to a wide range of users. | Both frameworks aim to inform stakeholders like investors and creditors, despite having different objectives for business and non-business entities under U.S. GAAP. |
| Underlying Assumptions | Recognizes accrual and going concern but doesn’t emphasize them much. | Emphasizes accrual and going concern bases. | Both use accrual and going concern assumptions. | An IFRS-compliant company’s financial statements assume ongoing operations indefinitely, similar to the concept under U.S. GAAP but with more emphasis. |
| Qualitative Characteristics | Uses understandability, relevance, reliability, and comparability with a hierarchy. | Uses the same characteristics without a hierarchy. | Both frameworks use the same qualitative characteristics. | While IFRS treats all characteristics equally, U.S. GAAP prioritizes relevance and reliability over comparability and understandability. |
| Approach | Historically rules-based, moving towards an object-oriented approach. | Principles-based approach. | – | IFRS relies on broad principles for financial reporting, whereas U.S. GAAP has detailed rules but is moving towards a more principle-based approach. |
| Performance Elements | Elements include revenues, expenses, gains, losses, and comprehensive income. | Elements are revenues and expenses. | – | Under IFRS, performance is measured by revenues and expenses, while U.S. GAAP also includes gains, losses, and comprehensive income. |
| Financial Position Elements | Assets are future economic benefits; “probable” is used in definitions. | Assets are future economic resources expected to provide benefits; “probable” is part of the criteria. | Both define assets and liabilities in terms of future benefits and obligations. | Both frameworks define assets as future economic benefits, but IFRS explicitly uses “probable” in its criteria for recognizing assets and liabilities. |
| Recognition of Elements | Does not use “probable” for recognition; uses “relevance” as a criterion. | Requires “probable” future economic benefits for recognition. | – | IFRS requires that an asset be recognized if it is probable that future benefits will flow to the entity, unlike U.S. GAAP which uses relevance without explicitly stating “probable”. |
| Measurement of Elements | Generally prohibits revaluation, except for certain categories discussed later. | Revaluation is usually permitted. | Both use historical cost, current cost, and other measurement attributes. | IFRS allows revaluation of assets like property, whereas U.S. GAAP typically does not, except in certain circumstances discussed in later sections. |
