What are the key differences between IFRS and GAAP?

What are the key differences between IFRS and GAAP?

IFRS (International Financial Reporting Standards) and GAAP (Generally Accepted Accounting Principles) differ in several ways, including revenue recognition, measurement of assets, and the treatment of leases. For example, IFRS allows for more flexibility in revenue recognition, while GAAP has stricter guidelines.

Can you give me an example of how revenue recognition differs?

Sure! Under IFRS, a company can recognize revenue when it transfers control of a good or service to a customer, which can happen at different stages. In contrast, GAAP requires revenue to be recognized when it is realized or realizable and earned, often leading to different timing in reporting.

What about lease accounting?

In lease accounting, IFRS requires lessees to recognize most leases on the balance sheet as a right-of-use asset and a lease liability. GAAP, however, has a distinction between operating and finance leases, with only finance leases appearing on the balance sheet.

Are there any other major differences I should know about?

Yes, other differences include how companies handle inventory valuation, impairment of assets, and the treatment of development costs. Each framework has its own set of rules that can significantly impact financial statements.