GAAP vs. IFRS: Financial Reporting Comparison

Summary

GAAP and IFRS are two methods of financial reporting. Students learn how they differ and how they are similar.

GAAP and IFRS

GAAP is the set of rules used in the United States for financial reporting. IFRS is the international equivalent. Both have their own rules for cash-flow projection and models.

Differences in Net Income

Revenue recognition, the matching principle and depreciation can cause differences between accounting profits and cash flow. These differences can affect the income statement.

Financial Statement Differences

GAAP and IFRS have different requirements for the layout and content of financial statements. IFRS may provide more transparency regarding expenses.

Common International Standard

A writer discusses the costs and benefits of shifting from GAAP to IFRS. A personal reflection on the topic is included.

Key terms

GAAP

Generally Accepted Accounting Principles, the rules for financial reporting in the United States.

IFRS

International Financial Reporting Standards, the rules for financial reporting internationally.

Revenue recognition

The practice of recording revenue when a transaction occurs, not when payment is received.

Matching principle

The practice of recording expenses when revenue is recognized, not when expenses are paid.

Depreciation

The practice of spreading the cost of an asset over its useful life.

Extraordinary items

Events or transactions that are unusual in nature and infrequent in occurrence.

Questions this document helps with

• How do GAAP and IFRS differ in financial reporting?
• What causes differences between accounting profits and cash flow?
• What are the costs and benefits of shifting from GAAP to IFRS?

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