In the world of accounting, there is a set of rules that are followed to ensure that business runs smoothly and in an orderly manner. In the United States, accounts follow a set of rules known as GAAP (Generally Accepted Accounting Principles). It is known as a rule-based system. However, a larger population of the world follows the accounting standard known as IFRS (International Financial Reporting Standards. Many countries follow this standard which is known to be more principled. These countries use this method so that they can understand the methods. others and can identify what they are doing While GAAP and IFRS are not very different from each other, they do have some important differences.

Since IFRS is based on principles, it leaves a lot of room for different interpretations that could lead to financial statement disclosures that can greatly influence a company. The GAAP rules-based principle keeps companies on track by having a clear list of rules that shows them what they can and cannot report. This does not allow companies to do what they please and it keeps everyone on the same page. Another difference between the two companies is the use of LIFO (Last in First out). This is an inventory method used which means that the last inventory brought into the business will be the first one sold. GAAP allows companies to choose between this or FIFO (first in, first out). However, IFRS does not allow companies to use LIFO and they must opt ​​for FIFO. When it comes to development costs, standards differ again. GAAP always labels these costs as expenses. While IFRS have a criterion that if these costs coincide, they can be capitalized rather than accounted for as expenses. GAAP is a rules-based standard, but it doesn’t give companies as many options. Once an asset is recorded at its market value, there is no going back on that amount, even if it changes in the future. However, IFRS says that if there is a change in the asset’s market value, they can reverse the depreciation and change it to its new market value.

Although there are many differences between the two, why is there no standard of rules that is used throughout the world? One reason is based on the two standards that they both have. The United States believes that they should have a specific set of rules and if it is broken, then they know that they must go to the auditors and accountants to find the problem. IFRS allow more freedom and prefer that they give companies more flexibility in the way they approach their business. Another reason the two won’t merge is that IFRS like to work only on issues. They do not reach out to others or work with them to fix what is wrong. GAAP is the opposite, as they want others to come and help if there is a problem that they cannot solve. They have published standards and none of them coincide with what IFRS believes. This continues to show that they are different.

Finally, one of the main reasons the two will not band together to become one is politics. Politics is a big problem in many areas and accounting does not prevent it. In the United States, giving up their GAAP set of rules to a foreign policy of non-trained outsiders does not appeal to them. They believe that if they abandon it, they are not protecting investors in the country and holding them responsible for future problems. GAAP members also think that with a more principled and non-rule-based standard, there is plenty of room for companies to do what they want. It’s uncomfortable for GAAP to have looser rules and let companies do what they please. They believe that there is a lot of room for problems that can arise from this. When asked why they are not converging, they responded that investors believe that “giving up their high quality standards should not be compromised for the sake of consistency” (https://www.ifac.org/global-knowledge- gateway / business -reporting / discussion / does-ifrs-have-future-us). “However, minor adjustments have been made to GAAP to close the differences between the two a bit and they want to narrow the gap as much as possible without lose what they think is right.

In conclusion, there are many differences between GAAP and IFRS. Both are set up to help companies properly archive information and conduct business efficiently and to standards. The differences between the two standards have narrowed, but there is still a larger gap between the two. It will be interesting to keep track of these two accounting standards and see if there will ever be only one set of standards.