Running head: COMPARING IFRS TO GAAP

Comparing IFRS to GAAP

Daniel Rauch
ACC/290
February 9, 2015
Rhonda Smith-Lyttle

COMPARING IFRS TO GAAP

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Comparing IFRS to GAAP

In a continuing expanding global market place the need for financial reporting equality is
not just a need but a necessity in order to compete in a global market place. Both IFRS and
GAAP provide a good frame work for this. However with only the United States using GAAP
and most of the rest of the world, about 90 countries are using IFRS (Cantoria, 2011). This
potentially could but the United States at a disadvantage, especially when looking for investors
outside the United States. Lets take a look at the significant differences.
Starting with balance sheet, GAAP has a detailed layout that must follow the
requirements in Regulation S-X, IFRS has a similar requirement but is less detailed. IRFS also
has a third balance sheet requirement, A third balance sheet (and related notes) are required as
of the beginning of the earliest comparative period presented when entity restates its financial
statements or retrospectively applies a new accounting policy (Ernst & Young, 2012).
There are also terms under IFRS that may get your confused if you are used to GAAP
terms of common stock and balance sheets. Under IFRS common stock is referred to share
capital ordinary, which mean exactly the same thing as common stock. The reason it was
selected to use is due to the common use in Europe to describe common stock. Balance sheet is
another one that is different in IFRS, in IFRS it is called statement of financial position, which
to me makes a perfect description of a balance sheet. Both the statement of financial position
and the balance sheet have the same content but are laid out a bit differently.
Our economy is one of the largest in the world, the SEC should take a hard look at what it
will take to change from GAAP to IFRS. I do not believe the issues are the reporting or
change. But there is a financial impact to the United States. There is the re-training of every

COMPARING IFRS TO GAAP

accountant out there preparing financial statements, you have to consider the infrastructure of the
college and university community, this would be a drastic change to current curriculum.
Both GAAP and IFRS have a different approach to revenue recognition. GAAP uses
revenue recognition that is specific to an industry, where IFRS is a bit more forgiving in revenue
recognition, only looking for a something that is economically significant.
IFRS only looks at revenue and expenses as ordinary operating activities, so if you
primary operations was retail sales and the company earned money from investments, these gains
would be reported separately from the operations reporting.
Some say that SOX put a burden on companies due to the increased cost for the
additional reporting required by SOX, thus causing US companies to be less competitive in the
world economy. I do not believe this to be factual, more of a resistance to change, or maybe
those who say SOX is a burden have something to hide. If I was an investor from outside the US
and watched what happened with Enron, I would be very reluctant to invest in companies with-in
the US, but with SOX I would be assured that there is enough accountability that my investments
would be safe.
Does it make sense to move the United States from GAAP to IFRS? I think probably
long term it would be a good idea to, especially considering the global market place and
globalization of the economy. GAAP potentially could put us at a disadvantage due to the
reporting differences between IFRS and GAAP. There are cost associated with the transition but
those costs spread out over time would be small, and the overall benefit of equal playing fields in
the global market place would be worth the costs.

COMPARING IFRS TO GAAP

References
Cantoria, C. S. (2011, May 20). Examples of US GAAP vs. International GAAP (IFRS).
Retrieved from Bright Hub: www.brighthub.com/office/finance/articles/78689.aspx
Ernst & Young. (2012). US GAAP versus IFRS. Ernst & Young LLP.