Introduction
In 2008, the Securities and Exchange Commission (SEC) issued a road map for the United States (US) to implement International Financial Reporting Standards (IFRS) that would eventually lead to the dissolution of US Generally Accepted Accounting Principles (US GAAP) (Cox 2008). US GAAP is rules based system of accounting that contains over 25,000 detailed pages of guidance, whereas IFRS is a principles based system of accounting that contains 2,500 pages of guidance. IFRS allows accountants to exercise professional judgment when making many decisions. This paper will compare and contrast US GAAP with IFRS on Intermediate Accounting Topics.
Financial Reporting
In the past, Accounting standards in the US were set by the American Institute of Certified Public Accountants (AICPA). However in 1973, the Financial Accounting Standards Board (FASB) began writing and issuing US GAAP (FASB.org 2012). FASB’s Accounting Standards Codification (ASC) is the source of authoritative US GAAP for nongovernmental entities (DATABASE). As many companies began operating globally the need for consistent financial reporting standards arose. To meet this need, the International Accounting Standards Committee (IASC) was established in 1973 in London, England (Flesher 2008). The main goal of the IASC was to formulate International Accounting Standards (IAS) that could be used for large publicly traded companies, but progress was limited. In 2001, this committee was replaced by the International Accounting Standards Board (IASB). The IAS also switched to the use of International Financial Reporting Standards (IFRS) with the creation of the IASB (Jei-Fang Lew 2005). The introduction of the Euro served as a catalyst for these changes and crea...
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...venues must be measured at the fair value of the consideration received or receivable.
US GAAP defines revenues in FASB’s Statement of Financial Accounting Concept (SFAC) 6.78 as inflow or other enhancements of assets of an entity or settlements of its liability (or a combination of both) from delivering or producing goods, rendering services, or other activities that constitute the entities ongoing major or central operations. SFAC 5.83 specifies that revenues and gains are measured at the exchange value of the assets or liabilities involved.
Revenue Recognition on LTPROJ
Long-term project US GAAP allows percentage-of-completion method and completed-contract method. Percentage-of-completion method revenues are recognized as the. Completed-contract method recognizes revenues when the long-term project is completed. IFRS does not allow completed-contract method.
The majorities of financial advisers do not have a formal accounting or tax background and thus have some challenges to overcome when reading tax returns of their clients. However they are still asked to help their clients in future planning. Since most accounting is to be done based on compliance with GAAP it would make sense to think that tax accounting should also be done this way, however both the IRS and the courts have stated that compliance with GAAP is of little significance when dealing with the objectives of tax accounting. The objectives of both accounting methods are simply different, because the primary goal of financial accounting is to provide useful information to all stakeholders and the primary goal of the income tax system is the equitable collection of revenue. Because of these differences it can be said that the users of accounting information are different for both methods. The assumption for financial accounting is the going-concern and the tax accounting system ignores this assumption. These differences give us the concept of timing differences and permanent differences. Understanding...
The goal of the Codification is to simplify the organization of thousands of authoritative U.S. accounting pronouncements issued by multiple standard-setters. To achieve this goal, the FASB initiated a project to integrate and topically organize all relevant accounting pronouncements issued by the U.S. standard-setters including those of the FASB, the American Institute of Certified Public Accountants (AICPA), and the Emerging Issues Task Force (EITF)
In the world of international finance there are two major accounting systems; GAAP, which stands for Generally Accepted Accounting Principles, and IFRS, which stands for International Financial Reporting Standards. The United States prefers GAAP while the European market, as well as many other countries, prefers IFRS. By 2015 the Securities Exchange Commission is anticipating a total transfer to IFRS in the United States. Though the differences between GAAP and IFRS are few, they could affect accuracy of financial reporting throughout the world. It is important to understand the differences and similarities between both GAAP and IFRS if one is to globalize ones market (Logue).
These standards of practices are done in for profit and non-for profit health care organizations. There are specific accounting principles that the health care organization must adhere to. They are to report there financial position, meaning a financial balance document which reflects their overall financial position. Secondly, the organization must report in detail the financial outcome of the organization, such as, the revenue and expenses and a complete documentation of the organizations income. Lastly, the health care organization must also provide financial disclosures. These basic principles are known as GAAP. The purpose of these guidelines are to convey a set of policies and procedures for financial statements that are to be followed prior to presenting them to the stakeholders of the organization.
According to Financial Accounting Foundation (2014), the FASB Accounting Standards codification is "the source of authoritative generally accepted accounting principle (GAAP) recognized by the Financial Accounting Standard Board (FASB) to be applied to nongovernmental entities" (FASB.org, 2014). The codification system allows user to access the authoritative content, do research, and give feedback. The purpose of the FASB Codification system is make clear and easier to locating, understanding and applying the accounting standards through using an online database, which developed and issued the standards over the years. The implementation of codification system reduces the amount of time and effort required to resolve accounting research issues.
Revenue recognition is a combination of the two concepts recognition and realization. Recognition is the process of reporting a transaction or event to the entities financial statements and realization is the process of converting non cash assets to cash or claims to cash (Schroeder 2014). Therefore, first revenue must be realized to be recognized. Revenue is one of the single most important items on the income statement. Revenue in general is one the most important factors to stakeholders.
FASB Statement of Financial Accounting Concepts (CON) 5, Recognition and Measurement in Financial Statements of Business Enterprises, set forth the historic guiding principle to revenue recognition. Pursuant to paragraph 83, for revenue to be recognized it must be (a) realized or realizable and (b) earned. Revenues are “realized” when products, goods, services, or other assets are exchanged for cash or claims to cash. They are “realizable” when related assets received or held are readily convertible to known amounts of cash or claims of cash. Revenue is “earned” when an entity has “substantially accomplished what it must do to be entitled to the benefits represented by the revenues.” SEC Staff Accounting Bulleting (SAB) 104, Revenue Recognition issued in December 2003 provided additional guidance to when revenue is realized or realizable and earned setting forth four basic criteria: (1) persuasive evidence of an arrangement exists, (2) delivery has occurred or services have been rendered, (3) the seller’s price to the buyer is fixed or determinable, and (4) collectibility is reasonable assured.
One of the most debatable topics in the accounting industry today is the extent in which we should make the financial statements understandable to the general population. The FASB currently gears its reporting standards toward...
Total revenue, which is the total amount of income received from the sales of a certain quantity of goods or services. Total revenue can be calculated by multiplying the price of a product times the quantity sold. For instance, if 160 baseball caps are sold and each baseball cap was priced at $5 each, the total revenue would be (160*5) $180.
IFRS (International Financial Reporting Standards) is used in 110 different countries, however the GAAP (Generally Accepted Accounting Principles) is only used in the U.S. These two accounting practices report financial data differently, specifically intangible assets. Intangible assets under GAAP are recognized at fair value, however under IFRS “they are only recognized if the asset will have a future economic benefit and has a measured reliability” (2015, GAAP vs IFRS). There are other differences between these two practices for revaluations, advertising costs, goodwill, and internally developed intangible
General accepted accounting principles (GAAP) are considered to be the framework guidelines for financial accounting and jurisdiction of all accounting standards. The (GAAP) includes standards, conventions and the rules that the organization accountant follows when recording and summarizing all the transactions when preparing the financial statements. Third parties that are involved with the reports rely on the information to be free from bias and inconsistency without debate. All business states that, “generally accepted accounting principles are guidelines precisely, are a group objectives and conventions that have been established over time to set how financial statements are prepared and presented (Corporate Government 2010). There is a precedence that takes place when dealing with the finances of different organization. The organizations that deal with any type of financial data must comply with GAAP standards so that outside creditors can view their financial statements with little or no difficulty. For example Financial Accounting Standards (FASB) is private not-for-profit organization that oversees the majority of the different organizations within the United States including the healthcare industry.
...all, R. (2006). International Financial Reporting Standards (IFRS): Pros and Cons for Investors. Accounting and Business Research.
The International Accounting Standards Board, (IASB), began life as the International Accounting Standards Committee (IASC) in the 1973. The IASC was created in June 1973 as a result of an agreement by the accountancy bodies of Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the United Kingdom and Ireland and the United States. These countries constituted the Board of IASC at that time.
Growth in international trade has been on the increase over the years necessitating several organizations to be involved in the efforts to harmonize accounting practices either regionally or internationally. Among those, leading in this effort were the European Union (EU) and International Accounting Standards Board (IASB) (formerly International Accounting Standards Committee.
Judgement is a notion of relevance and reliability in developing and applying accounting policies. It is a requirement of management that they exercise a high degree of professional judgement when selecting appropriate accounting policies in the preparation of financial statements that is relevant to decision-making and assessment needs of users. Management should also consider the applicability of IFRS and AASB in dealing with similar and related issues and then the definitions, recognition criteria in the Conceptual Framework when there is no IFRS standard or interpretation in certain circumstances that are specifically applicable. Management may also consider the most current pronouncements of other standard-setting bodies to the extent that do not conflict with IFRS and AASB in developing accounting standards and accepted industry practices by using a similar conceptual framework.