International manage a company/business globally (Firm of The Future

International Financial Reporting
Standards (IFRS) is an accounting concept that is used in many countries of the
world. IFRS are the principles/practices that regulated companies are required
to use in reporting accounting information in financial statements. Generally Accepted
Accounting Principles (GAAP) is used in the United States to measure and report
relevant and representationally faithful financial statements to investors and
creditors in the same sense that other countries use IFRS (Wahlen). Even though
these two accounting methods are used in the same sense they have kay
differences from each other. As an accounting, professional or business owner
it is vital to know the key variations that come with different accounting
methods to successfully manage a company/business globally (Firm of The Future
Team).

 

One difference between the
accounting methods GAAP and IFRS is the difference between rules and
principles.  The policy used to assess the accounting
process., GAAP focuses on research and is rule-based, whereas IFRS looks at the
overall patterns and is based on principle. With GAAP accounting, there’s
little room for interpretation all transactions must stand by a specific set of
rules. With a principle-based accounting method, such as the IFRS, there’s
potential for different interpretations (Firm of The Future Team). This as you can insight from the information provided it a
major difference between the two methods and could have a dramatic effect if
not followed properly.

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Another major difference between the two accounting
methods is the quality characteristics and how the accounting methods function.
GAAP works within a ladder of characteristics, such as relevance, reliability
and understandability, to make informed decisions based on specific circumstances
of an individual. IFRS also works with the same characteristics, with the
exception that decisions cannot be made on the specific circumstances of an
individual (Pricewaterhousecoopers).

When it comes the Income statements under IFRS,
extraordinary items are included in the income statement. Meanwhile, under
GAAP, they are separated and shown below the net income portion of the income
statement. The difference in methods when it comes to Liabilities the
classification of debts under GAAP is split between current liabilities and
noncurrent liabilities. With IFRS, there is no differentiation made between the
classification of liabilities, as all debts are considered noncurrent on the
balance sheet (Wahlen).

 The Firm of the Future also notes that when it comes to intangible assets, such as
research and development, IFRS accounting stands out as a principle-based
method. It takes into account whether an asset will have a future economic
benefit as a way of assessing the value. Intangible assets measured under GAAP
are recognized at the fair market value and nothing more. When it comes to
fixed assets, such as property, furniture and equipment, companies using GAAP
accounting must value these assets using the cost model. IFRS allows
a different model for fixed assets called the revaluation model. The
two different methods have a much different way of recording basic account
transactions which is another example of how differently the two methods are
and how understanding the difference is vital in understanding global business.

 

As you can tell there are many other differences between
the methods that must be accounted for when doing business. It’s important to
really understand these differences between IFRS and GAAP accounting, so that a
company/business can accurately do business internationally. U.S.-based companies
must abide by specific accounting regulations, even if they plan to do business
internationally.