It is well known that country-wise variations exist in accounting standards and financial reporting in the finance and accounting domain.
In the USA the Financial Accounting Standard Board(FASB) assembled the prevalent practices and norms practised there in the shape of Generally Accepted Accounting Principles (GAAP) which indicates commonly accepted measures, principles and benchmarks upon compilation of accounting disclosures.
On the contrary, International Financial Reporting Standards(IFRS) are governed by the International Accounting Standard Board(IASB).
IFRS provides the guidelines and framework for reporting of financial events, transactions etc. according to the specific type of each event. It helps to impart and set a common accounting platform for global understanding and acceptance across the companies as well as the countries. Because of its proven efficacy, more than 144 countries accepted IFRS with a growing inclination of switch over from GAAP to IFRS particularly in limited growth settings.
GAAP is the norm to follow for inside out distribution of financial statements of a company. This include outstanding stock determinations, item categorisation, balance sheet, revenue identification etc.which act as benchmark for the investors. GAAP is mainly practised in the US based companies.
IFRS, on the other-hand, is considered as a marker of financial stability and transparency. This is the settings to help investors to draw calculated financial commitments. It is the financial accounting and reporting standard outside USA but followed by the European Union(EU) and some Asian countries also. IFRS is quite beneficial for those countries that involve in international financial transactions.
To sum up, the basis of two systems i .e GAAP and IFRS are rules and principles respectively. GAAP permits LIFO but IFRS discourage it, while both has compliance with FIFO and weighted average-cost method.Moreover, inventory reversal is totally forbidden in GAAP but allowed in IFRS under certain circumstances.
In conclusion, GAAP is a rule- based regional guideline while IFRS is an international principle based norm which allow more flexibility in a global scale.
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