The key differences between International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) as of December 2024 are as follows:
1. Basis of Accounting
IFRS: Principles-based approach, focusing on the substance over form.
GAAP: Rules-based approach, with specific guidelines and industry-specific rules.
2. Revenue Recognition
IFRS: Revenue is recognized when it is probable that economic benefits will flow to the entity and the revenue can be reliably measured.
GAAP: Revenue recognition is more detailed and specific, with different criteria for different types of revenue (e.g., sale of goods, rendering of services).
3. Lease Accounting
IFRS: All leases are recognized on the balance sheet as either finance leases or operating leases.
GAAP: Similar to IFRS, but previously allowed off-balance-sheet treatment for certain operating leases.
4. Inventory Valuation
IFRS: Does not permit the Last-In, First-Out (LIFO) method. Only First-In, First-Out (FIFO) and weighted average cost methods are allowed.
GAAP: Permits the use of LIFO, FIFO, and weighted average cost methods.
5. Asset Impairment
IFRS: Allows for the reversal of impairment losses if the reasons for impairment no longer exist.
GAAP: Does not allow the reversal of impairment losses once recognized.
6. Intangible Assets
IFRS: Allows for the revaluation of intangible assets to fair value if fair value can be measured reliably in an active market.
GAAP: Generally does not allow the revaluation of intangible assets to fair value.
7. Cash Flow Statements
IFRS: Interest paid and interest received can be reported under operating or financing activities, and interest received can be reported under operating or investing activities.
IFRS: Uses terms like "probable" to mean a greater than 50% chance of occurrence.
GAAP: Uses "probable" to mean a greater than 75% chance of occurrence.
10. Disclosure Requirements
IFRS: Emphasizes the need for clear, reliable, relevant, and comparable information in financial statements.
GAAP: Has detailed disclosure requirements that vary by industry and type of transaction.
These differences reflect the broader philosophical approaches of IFRS and GAAP, with IFRS focusing on principles and flexibility, and GAAP emphasizing detailed rules and specificity. Understanding these differences is crucial for companies operating internationally or preparing financial statements for different jurisdictions.
