The standards that govern financial reporting and accounting vary from country to country. In the United States, financial reporting practices set by the Council for financial accounting standards (FASB), and organized within the framework of generally accepted accounting principles (GAAP). More than 100 countries around the world have implemented international financial reporting standards (IFRS), the purpose of which is to create a single global language for accounting of the company. While the Commission securities and exchange Commission (sec), has openly expressed a desire to move from GAAP to IFRS, development has been slow.
Some accountants believe the methodology the main difference between the two systems; GAAP rules and IFRS principles based. The gap manifests itself in specific details and interpretations. Basically, IFRS guidelines provide much less overall detail than GAAP. Therefore, the Theoretical foundations and principles of IFRS to leave more space for interpretation and can often require extended disclosures in the financial statements. On the other hand, consistent and intuitive to the principles of IFRS more sober and, perhaps, better represent the Economics of business transactions.
Perhaps the most notable specific differences between GAAP and IFRS involves processing inventory. IFRS rules to prohibit the use of last-in first-out (LIFO) inventory accounting techniques. Rules GAAP allows LIFO. Both systems allow the first-in, first-out method (FIFO) and weighted average cost method. US GAAP does not allow inventory turns, while IFRS allow them under certain conditions.
Another Key difference in accounting is that GAAP requires the financial statements include a statement of comprehensive income. IFRS does not consider comprehensive income to be the key element of performance and therefore does not require it. This leaves some space for mixing with the owners and other activity in the financial statements.