IFRS vs. GAAP
Significant changes are occurring in the way account balances and transactions are accounted for. This is largely due to the slow and steady transition of U.S. Generally Accepted Accounting Principles (GAAP) to be more in line with International Financial Reporting Standards (IFRS). IFRS is the accounting standard set out by the International Accounting Standards Board (IASB) and has been adopted by countries all over the world.
Eventually it is hoped by the IASB, and many countries, that the entire world will adhere to IFRS and accounting rules will be standardized globally. Historically, all countries had their own versions of GAAP, which made public reporting and understanding the operations of companies in different countries very difficult to fully comprehend. The United States has not yet fully adopted IFRS, but the last few years have seen changes to U.S. GAAP that are slowly aligning U.S. accounting standards with those of the rest of the world. So what does this mean? First, U.S. GAAP is not aligned with IFRS in all matters (particularly around complex financial instruments). When comparing the financial statements of a U.S. company to one that reports under IFRS one needs to ensure they understand where those differences exist. Second, one can expect the trend for U.S. accounting rules to continue over the next several years until IFRS is fully adopted. Some rules, like those for leasing, are already scheduled for transition and more will follow. Understanding when those changes need to be implemented is something businesses need to be aware of.
By Jeffrey Glen