GAAP and IFRS in accounting
At this moment in time, there are two main types of accounting principles that are followed, these being the GAAP and IFRS accounting. Each type has its own advantages and disadvantages, and can both provide and hinder economic growth if not applied correctly.
With this in mind, GAAP stands for generally accepted accounting principles, and represents a collection of various, commonly-followed rules and standards often used for financial reporting. GAAP specifications include both definitions of concepts, but also economic principles and industry rules that need to be followed for correct financial reporting and economic growth. It’s important to note that the GAAP does not exclusively refer to the standards being used in the US, but rather in any other country that wishes to adopt this standard.
On the other hand, the IFRS, also known as the International Financial Reporting Standards, represents a clear set of accounting standards that have been created by an institution known by the name of the International Accounting Standards Board, which is also quickly becoming the worldwide standard, and more popular than the GAAP. Currently, over 120 nations have adopted the IFRS principles, yet only 90 countries have signed all the agreements and are completely allowed to follow the principles of the IFRS. Therefore, these particular countries have also signed a statement where they acknowledge their conformity in all audit reports being carried out. For those who do not know, the creator of the IFRS, the IASB represents a private-sector and independent body, operating under the overview of the IFRS Foundation, and responsible with creating the afferent guidelines for the financial reporting system.
The main differences between the two systems are in terms of reporting intangible assets, write downs and last but not least, inventory costs.
THE IRFS PRINCIPLES
ALL THE AGREEMENTS