Under IFRS, a firm can choose its own policy for classifying interest based on what it considers to be appropriate. GAAP prescribes that interest paid and interest received should be classified as operating activities, while international standards are a bit more flexible. This is most acutely seen in how interest and dividends are classified. The Cash Flow StatementĪ company’s cash flow statement is also prepared differently under GAAP and IFRS. Under IFRS, the order is reversed (least liquid to most liquid): non-current assets, current assets, owners’ equity, non-current liabilities, and current liabilities. The items are arranged in descending order (most liquid to least liquid): current assets, non-current assets, current liabilities, non-current liabilities, and owners’ equity. GAAP calls for accounts to be listed in the order of liquidity-or how quickly and easily they can be converted to cash. The two standards also dictate different approaches to ordering categories on the balance sheet. Under GAAP, current assets are listed first, while a sheet prepared under IFRS begins with non-current assets. Is formatted is different in the US than in other countries. Here are four key differences between GAAP and IFRS. While GAAP and IFRS share many similarities, there are several contrasts, beyond the regions in which they’re applied. Work is being done to converge GAAP and IFRS, but the process has been slow going. These principles are dictated by the International Accounting Standards Board (IASB) and followed in many countries outside the US.ĭeciding which set of standards to use depends on whether your company operates in the US or internationally. IFRS stands for International Financial Reporting Standards.This set of guidelines is set by the Financial Accounting Standards Board (FASB) and adhered to by most US companies. GAAP, also referred to as US GAAP, is an acronym for Generally Accepted Accounting Principles.The two main sets of accounting standards followed by businesses are GAAP and IFRS. IFRSĪccounting standards are critical to ensuring a company’s financial information and statements are accurate and can be compared to the data reported by other organizations. Here’s a look at the two primary sets of accounting standards-GAAP and IFRS-and how they compare. If you want to further your accounting knowledge, it’s critical to understand the standards that guide how companies record transactions and report finances. Knowing how to analyze financial statements can improve your ability to communicate results and boost collaboration with colleagues in more numbers-focused positions. Accounting is often referred to as the “language of business.” It’s one of the most fundamental business skills, capable of revealing key insights into a company’s financial health and potential, and driving strategic decision-making that leads to new ventures and investment opportunities.įor professionals in non-accounting roles, understanding what’s behind an organization’s numbers can be immensely valuable.
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