Question

Looking at some of the differences between U.S. GAAP and IFRS, which is the set of accounting rules followed by just about every industrialized nation outside the U.S.  While there are many similarities between the two systems, there are also some significant differences.  After learning a little bit about some of the similarities and differences, please reflect somewhat on how these differences might impact financial statement analysis, or if you think they actually would.
what is a differences that exist between balance sheets that are prepared using U.S. GAAP and those prepared using International Financial Reporting Standards (IFRS).  Explain the difference and if there seems to have been a move in recent years toward convergence of the two systems.  Finally, discuss how such a difference might have an impact on financial statement analysis, or if you believe that it would.  

Answer 1

The primary difference between US GAAP and IFRS is that US GAAP is rules based standards and IFRS is principles based standards. IFRS is approved bY International Accounting Standards Board with an objective to bring about a convergence of accounting standards alll over the world. By being a principle based accounting standards IFRS is now better recognized and internationally accepted than US GAAP.

Major differences when preparing financial statements under US GAAP and IFRS are....

For Inventories

Unlike GAAP, IFRS prohibits the use LIFO system in recording inventories.FIFO or weighted average cost methods are only permitted to be used under IFRS. Here the ending inventory under IFRS would be greater than GAAP in an inflationary economy.

Revenue and Expense Recognition

GAAP has many standards to revenue recognition which produces conflicting information and limits the comparison of economic transactions. Under IFRS revenue should be recognized when a performance obligation with a customer is satisfied. It is often termed as a contract based revenue recognition.

For long term contracts like construction works IFRS suggests the use the percentage of completion method to recognize revenue than completed contract method.

For long lived asstes

Long lived assets are carried recorded at historica; cost or a revalued amount under IFRS and under GAAP lond lived assets are recorded under historical cost. Revaluation is prohibited under GAAP.

Balance sheet accounts are listed in the order of liquidity under US GAAP method, like from most liquid to least liquid.

Under IFRS balance sheet accounts are listed in the reverse order of liquidity, like from least liquid to most liquid.

Cash flow statement is also prepared differently under US GAAP and IFRS. Interest paid and interest received is an operating activity under US GAAP. While under IFRS a firm can choose on how to classify these two items.

Dividends paid is a financing activity and dividend received is an operating activity. under US GAAP. On the other hand IFRS gives that choice too to the companies on how to categorize the transactions relating to the dividend.