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What are the Five core differences between GAAP and IFRS?

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Question added by Aslam Khan , Senior Accounts Officer , Pakistan Software Export Board
Date Posted: 2016/09/11
GODWIN PETERS
by GODWIN PETERS , Financial Controller Nigeria , Emerson Process Management Nigeria

A major difference between GAAP and IFRS is that GAAP is rule-based, whereas IFRS is principle-based.

With a principle based framework there is the potential for different interpretations of similar transactions, which could lead to extensive disclosures in the financial statements. Although, the standards setting board in a principle-based system can clarify areas that are unclear. This could lead to fewer exceptions than a rules-based system.

Another difference between IFRS and GAAP is the methodology used to assess an accounting treatment. Under GAAP, the research is more focused on the literature whereas under IFRS, the review of the facts pattern is more thorough.

Some Examples of Differences between IFRS and U.S. GAAP

·         Consolidation — IFRS favors a control model whereas GAAP prefers a risks-and-rewards model. Some entities consolidated in accordance with FIN 46(R) may have to be shown separately under IFRS.

·         Statement of Income — Under IFRS, extraordinary items are not segregated in the income statement. With GAAP, they are shown below the net income.

·         Inventory — Under IFRS, LIFO cannot be used, but GAAP, companies have the choice between LIFO and FIFO.

·         Earning-per-Share — Under IFRS, the earning-per-share calculation does not average the individual interim period calculations, whereas under GAAP the computation averages the individual interim period incremental shares.

Development costs — these costs can be capitalized under IFRS if certain criteria are met, while it is considered as "expenses" under U.S. GAAP.

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