This document discusses the key differences between International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) used in the United States. It covers differences in financial statement formatting, revenue recognition principles, and definitions of revenues and expenses. It also discusses the SEC's consideration of adopting IFRS instead of GAAP, and implications of the Sarbanes-Oxley Act on competitiveness of US companies in global markets. While there are some differences, the overall financial reporting between IFRS and GAAP is not substantially different. Adopting IFRS would require significant changes for US businesses and consideration of economic impacts.

1. IFRS vs. GAAP
Stacey Troup
ACC/290
December 19, 2015
James Covert

2. IFRS vs. GAAP 2
The purpose of this Week 5 paper is to discuss the differences between the IFRS
(International Financial Reporting System) versus those of the GAAP (Generally Accepted
Accounting Principles). Originally designed as a team discussion paper, this will be discussed
from the single person perspective as the team did not respond to the weekly discussions as
needed for collaboration.
IFRS 2-1
Under the IFRS 2-1 designation, format differences between the Statement of Financial
Position under IFRS and the Balance Sheet under GAAP are discussed.
Under GAAP, companies are required to list their accounts in the order of their liquidity.
However, under IFRS these same accounts are listed in reverse order. The IFRS seeks to grant a
greater understanding of the company’s asset structure through this listing order (KPMG, 2015).
IFRS 2-2
Conceptual framework differences between IFRS an GAAP in terms of their objective
are covered under IFRS 2-2. It is important to know that they have the same positions regarding
objectivity in financial reporting (i.e. relevancy and faithful representation) (Smith, 2014). The
main difference is that the IFRS puts a special focus on maintaining relevancy between all
countries while GAAP is only focused within the U.S. (KPMG, 2015)

3. IFRS vs. GAAP 3
IFRS 2-3
In IFRS 2-3 we discuss the commonly used terms between the two entitites. Common
stock under GAAP is referred to as Share Capital – Ordinary under IFRS. Similarly, the Balance
Sheet (GAAP) is referred to as Statement of Financial Position under IFRS. (Smith, 2014)
IFRS 3-1
In this area we discuss the SEC and their involvement in the adaptation of IFRS in lieu of
GAAP Requirements. This change would require a major undertaking on the part of U.S.
businessesses including additional costs, training, adaptation of new auditing requirements and
corporate software overhaul to adhere with new rules. The SEC (Securities and Exchange
Commission) would need to determine the valuation of this switch and justify it to U.S.
Companies before it can be adapted. (Office of the Chief Accountant, United States Securities
and Exchange Commission, 2011)
IFRS 4-1
Revenue recognition is the discussion under IFRS 4-1. If a company’s standards are too
liberal there is a potential for fraudulent estimates and an overstatement of income. On the
reverse, if the standards are too conservative they prevent companies from taking advantage of
their realistic economic growth and would lead to dissappointed investors. (Smith, 2014) Under
IFRS, a more “general” stance is taken in reporting by stating that revenue can be recorded when
it becomes “economically significant”. Under GAAP, revenue recognition principles are highly
targeted based on different industries (KPMG, 2015)
IFRS 4-2
Definition of revenues and expenses under IFRS and their inclusion of gains and losses
are discussed in IFRS 4-2. Under IFRS, revenue is defined as “the gross flow of econonimic

4. IFRS vs. GAAP 4
benefit arising from the ordinary operating activities”. Gains and losses would (generally) not be
included as a part of revenue and expenses because they do not constitute operating activities
(Staff Writer, Securities and Exchange Commission, 2014).
IFRS 7-1
Competitive implications of the SOX Act of 1992 (Sarbanes-Oxley Act of 1992) are
discussed in this final review. While the SOX Act was designed to provide greater visibility of
companies, many U.S. financial services professionals argue that the implementation of this act
has resulted in a greater cost to U.S. companies through the addition of compliatory regulators
(Lowengrub, 2005). In 2008, IPO’s (Initial Public Offering) decreased 87% due to these rising
costs (Dumon, 2009). This results in U.S. investors sending their money overseas for greater
opportunity while also causing a great deal of U.S. companies to go “private” (Dumon, 2009).
Conclusion
The enlightening review of IFRS vs. GAAP has revealed many similarities but few
differences in reporting policies. Though some contextual differences remain as they relate to
document reference, the overall reporting is not that far off.
While the SEC meets regularly to determine if an IFRS changeover is applicable and
necessary for US businesses (Staff Writer, Securities and Exchange Commission, 2014) as well
as the necessary steps to implement this change, it is important to consider the change in the
landscape of the US investment market as well as the overall health of the US economy when
considering such a change.
With so many companies pulling out of US IPO’s in 2008 in favor of a more international
approach, this has left a stagnant US economic market. Along with the struggling economy
come fewer jobs, median income for the available jobs dropping below current market valuation

5. IFRS vs. GAAP 5
and a general collapse of our economic structure. Financial services companies set the tone for
economic growth and when these companies choose to outsource their investments overseas, the
only people who suffer are the US citizens.
While the SOX Act of 2002 has sought to increase visibility among those doing business
in the US, investment professionals have put the act under fire for its increased costs to
businesses for the implementation of compliatory regulators needed in order to adhere to the
SOX Act. Section 404 of the SOX Act is particularly under fire by investment firms for its high
cost to investment firms for compliance (Charles F. River Associates, 2005). Imagine if all US
companies put that money into their staff upgrades, job markets and investments for the future.
The landscape in our country would be significantly different.
Adapting IFRS is not a quick fix in itself. The US and the IFRS need to adapt uniform
standards that help recover the economy of the firms as well as keep visibility clear to those
investors. Like any option, it needs to be adapted and reworked to current standards and
practices on both sides of the pond before it can be considered effective.

6. IFRS vs. GAAP 6
References
Charles F. River Associates. (2005, 04). Sarbanes-Oxley Section 404 Costs and Remediation of
Remedies. Retrieved from Securities and Exchange Commission:
https://www.sec.gov/spotlight/soxcomp/soxcomp-all-attach.pdf
Dumon, M. (2009, 01 29). How the Sarbanes-Oxley Era Affected IPO's. Retrieved from
Investopedia.com: http://www.investopedia.com/articles/financial-theory/09/how-sox-
affected-ipos.asp?rp=i
KPMG. (2015, 12). IFRS Compared to US GAAP: An Overview. Retrieved from KPMG.Com:
https://assets.kpmg.com/content/dam/kpmg/pdf/2015/12/US-GAAP-comparison-2015-
overview.pdf
Lowengrub, P. (2005, 12 06). The Impact Of Sarbanes Oxley On Companies, Investors, &
Financial Markets. Retrieved from Sarbanes-Oxley Compliance Journal: http://www.s-
ox.com/dsp_getFeaturesDetails.cfm?CID=1141
Office of the Chief Accountant, United States Securities and Exchange Commission. (2011, 11
16). Staff Paper: A Comparison of US GAAP and IFRS. Retrieved from SEC.GOV:
https://www.sec.gov/spotlight/globalaccountingstandards/ifrs-work-plan-paper-111611-
gaap.pdf
Smith, L. M. (2014). Key Differences Between IFRS and US GAAP. Retrieved from IMA:
http://www.imanet.org/docs/default-
source/thought_leadership/global_business_environment/key_differences_between_ifrs_
and_us_gaap.pdf?sfvrsn=2
Staff Writer, Securities and Exchange Commission. (2014, 05 14). Spotlight on Work Plan for
Global Accounting Standards. Retrieved from SEC.GOV:
https://www.sec.gov/spotlight/globalaccountingstandards.shtml