IFRS and U.S. GAAP: Some Key Differences Accountants Should Know

The global movement to adopt International Financial Reporting Standards (IFRS) is the paramount financial reporting issue of the 21st Century. More than 100 countries now require their publicly traded companies to use IFRS as the basis of financial reporting. In the United States, convergence of U.S. Generally Accepted Accounting Principles (GAAP) with IFRS has been ongoing for many years, formally since the Norwalk Agreement of 2002 between the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). Based on a proposed timetable the U.S. Securities & Exchange Commission (SEC) developed, acceptance of IFRS in the U.S. could come as early as 2015, so understanding the standards is critically important to management accountants, auditors, financial analysts, corporate executives, and others involved with financial reporting. This article has two objectives: to describe some of the key differences between U.S. GAAP and IFRS and to compare actual financial statements reported under both standards. Findings indicate that there are some notable differences between the two, but they are not significant. BACKGROUND Professionals have widely touted advantages of a universal or global system of accounting as a benefit to investors because it would allow them to easily compare financial statements prepared in different countries. If all countries adopted IFRS, it would provide uniformity regarding how and what financial information a company discloses. Assisting their companies in implementing IFRS, if and when adopted, will be an important role for management accountants of publicly traded companies. (1) Along with advances in technology, the globalization of business has fostered interconnected worldwide capital markets. How IFRS will affect a company's accounting process is of great importance to management accountants, auditors, corporate executives, investors, lenders, financial analysts, regulators, and others connected to corporate financial reporting. Ultimately, corporate management is responsible for the quality and reliability of financial statements. The proposed replacement of U.S. GAAP with IFRS makes understanding the impact of IFRS on corporate financial reporting more essential than ever. How did IFRS develop? It began in 1973 when the International Accounting Standards Committee (IASC) was formed and began issuing International Accounting Standards (IAS). In 2001, the IASB replaced the IASC and began promulgating standards in a series of pronouncements designated as IFRS. The IASB adopted the standards the IASC issued between 1973 and 2000; these older standards continue to be designated IAS, and the nonsuperseded IAS are still a part of IFRS. [FIGURE 1 OMITTED] The IASB's organizational structure came from a strategy review undertaken by its predecessor body, the IASC board. The IASB's structure includes a monitoring board of capital market authorities that appoints members of the IASC Foundation, the parent body of the IASB. Composed of a geographically diverse group of trustees, the IASC Foundation oversees the IASB. Figure 1 shows the IASB organizational design. At this time, IFRS acceptance includes more than 12,000 companies in 113 nations with the number likely to exceed 150 countries within the next few years. Accountants, auditors, corporate executives, investors, and other corporate stakeholders will need to become knowledgeable about IFRS. Correspondingly, professional associations and industry groups will need to incorporate IFRS into their educational materials, publications, testing, and certification programs. For example, IMA[R] (Institute of Management Accountants) has provided its members with a series of webinars on IFRS in past years. To prepare future accountants, colleges and universities will need to include IFRS in their curricula. Several factors cause differences in accounting standards among nations: political systems, sources of capital, inflation, taxation, culture, accidents of history, and business complexity. …