International Financial Reporting Standards (IFRS) Essay

International Financial Reporting Standards (IFRS) - Essay Example The policies of IFRS are more advanced and precise for meeting the changes in the new accounting and audit systems, so US is also moving towards IFRS. The US GAAP is actually concept based, whereas IFRS is based on principles. The methodology of these two frameworks and the accounting treatments are also different. In US GAAP, the research is mainly based on the literature but in case of IFRS, the rules are mainly based on reviews and patterns of facts. Table of Contents International Financial Reporting Standards (IFRS) 4 Generally Accepted Accounting Principles (GAAP) 5 Different between IFRS and GAAP 5 International Financial Reporting Standards (IFRS) International Financial Reporting Standards (IFRS) is a principle based framework created to develop new standards of accounting and auditing. The International Accounting Standards (IAS) was renamed as IFRS and the policies of IAS was also changed or renewed under this. The IFRS was constructed to develop a globalised accounting an d auditing model. The IFRS approves three main accounting models: The current cost accounting, maintenance of financial capital in the units of the constant purchasing power and the capital for maintaining nominal monetary units. IFRS follows three basic assumptions: Going on Concern: It states that an entity will continue its activities and any form of hindrance would not stop it from doing so. The assumption for proper and stable measuring units: The changes in the purchasing ability of functional currency excluding the 26 percent p.a. for consecutive 3 years can be considered immaterial for not considering the capital maintenance as stated in the guidelines of IFRS. Purchasing Power: It considers the constant power to purchase at all levels of inflation and deflation in relation to the consumer price index. Generally Accepted Accounting Principles (GAAP) The Generally Accepted Accounting principles (GAAP) are the rules in relation to accounting and auditing which are used for pre senting, and preparing the financial reports or statements for different entity. It includes the policies for the entire accounting and auditing industry. The GAAP is actually set or formulated by the Government Accounting Standard Board (GASB). The basic objectives of GAAP are: To safe guard the interest of the investors. To help the authorities take important financial decisions. It plays a significant role in maintaining records. It improves the performance of the organization (Cerritos, n. d.). Different between IFRS and GAAP The basic difference between IFRS and US GAAP framework are: Inventory: Under the system of IFRS, the LIFO system cannot be used, but in GAAP both LIFO and FIFO are allowed. So companies have choices in the second case. Cost of Development: In case of IFRS the