Acc 290 – Ifrs Vs. Gaap
IFRS vs GAAPRichie GalinatoACC/291January 8, 2016Thomas HouseIFRS vs GAAPWhile GAAP (Generally Accepted Accounting Practices) is accepted in United States of a, the more widely utilized accounting practice is the International Financial Reporting Standards. The IFRS is used in more than 110 countries. The IFRS is considered more principle based while GAAP is more rule oriented. While these two accounting practices may be different, they still have many similarities and serve the same purpose. IFRS 8-1: What are some steps taken by both the FASB and IASB to move to fair value measurement for financial instruments? In what ways have some of the approaches differed?To ensure accuracy of determining a company’s value and assets, both GAAP and IFRS require accounting firms to provide fair value measurement information located in the notes of financial statements. IFRS utilizes a two-step method that analyzes individual receivables and then analyzes receivables as a whole to find and discrepancies. The fair value measurement practice requires that assets of the same class must receive similar evaluation standards and that assets must be reported at fair market value or book value depending on the situation (“IFRS”, 2015).
IFRS 9-1: What is component depreciation, and when must it be used?Component depreciation consists of an asset with different parts that depreciate differently. When components have differing deprecating values, the IFRS requires the use of Component depreciation. This helps provide a more accurate assessment when figuring out the book value of an item. GAAP permits this practice but does not require it. An example of this would be an external efficient cooling system for a computer that would not need to be replaced for several years but the computer would become obsolete due to the rapid pace of computers changing (“Financial Accounting Foundation”, 2015).IFRS 9-2: What is revaluation of plant assets? When should revaluation be applied?Reevaluation of plant assets is the process in which values change from book value to fair value. This change is required when an economic event drastically changes the value of an asset like a building or piece of machinery. If the asset being reevaluated is under IFRS, all other assets in its class must be treated the same so that this ensures a company’s consistent evaluation of its assets (Arline, 2015).IFRS 9-3: Some product development expenditures are recorded as development expenses and others as development costs. Explain the difference between these accounts and how a company decides which classification is appropriate.IFRS requires reporting research costs while GAAP requires that all expenses including research and development must be reported in the income statement. It is optional for a company to report development costs as capital expenditures. This requirement makes it so that the cost be depreciated over the useful life that the developed item provides (“Financial Accounting Foundation”, 2015).