Accounting is commonly referred to as the language of businesses. One of the most fundamental business abilities it has that it can help companies make strategic decisions that result in new business endeavors and investment opportunities. It can also provide important insights into the financial health and future of a firm. Knowing what is behind an organization’s figures can be enormously valuable for workers in non-accounting professions. Understanding financial statement analysis helps in conveying outcomes better and working more effectively with co-workers who have roles that place a greater emphasis on numbers.
Understanding the standards that govern how businesses record transactions and report finances is essential if you want to advance your accounting skills. Here is a comparison of the two main sets of accounting standards, GAAP and IFRS. If you wish to get an IFRS online certification course, make sure to understand how it differs from GAAP internationally.
Understanding The Difference Between IFRS and GAAP
The accuracy of a company’s financial information and statements and their ability to be compared to the information provided by other companies depend heavily on accounting standards.
The term “GAAP” stands for “Generally Accepted Accounting Principles,” sometimes known as “US GAAP.” Most US businesses abide by this set of rules, which were established by the Financial Accounting Standards Board (FASB).
International Financial Reporting Standards are referred to as IFRS. Many nations outside of the United States adhere to these standards, which are established by the International Accounting Standards Board (IASB).
Key Differences Between IFRS and GAAP
The Cash Flow Statement
Under GAAP and IFRS, a company’s cash flow statement is also created in different ways. The classification of interest and dividends is the clearest example of this.
International standards are comparatively more flexible than GAAP when it comes to classifying interest collected and paid as operating activities. According to IFRS, a company can select its own classification scheme for interest depending on what it deems acceptable. The cash flow statement’s operating or financing part should be used to record interest payments, and the operating or investing section should be used for interest receipts.
The Balance Sheet
In the US, balance sheets are formatted differently than they are in other nations. Under GAAP, current assets are listed first, whereas non-current assets are listed first on a sheet created under IFRS.
Additionally, the two standards require various methods for categorizing the balance sheet. Accounts must be listed in the order of liquidity, or how quickly and readily they may be converted to cash, according to GAAP. Current assets, non-current assets, current liabilities, non-current liabilities, and owner’s equity are listed in descending order (from most liquid to least liquid).
A loss on impairment occurs when an asset’s value decreases as a result of market or technological conditions, causing it to drop below its present value in the company’s books. Even while impairment is frequently irreversible, if the factors that contributed to the loss are no longer present, the value of the asset may rise after the loss has been recorded.
This resulting increase in value is handled differently under GAAP and IFRS. The value of an asset cannot be increased after it has been impaired according to GAAP regulations. However, according to IFRS standards, some assets may be revalued up to their original cost and depreciation taken into account.
If you wish to explore the different accounting standards and understand more about the accounting guidelines, AKPIS professionals are here for you. Connect with us and enroll in IFRS online course in India to make a career in accounting.