GAAP Vs IFRS

GAAP and IFRS
Name
Institution

Author Note

Apple Inc.’s GAAP Property Plant and Equipment Section of the Balance Sheet

Wipro LTD’s IFRS Property, Plant, and Equipment Section of the Balance Sheet

Similarities
From the above two screenshots, is evident that there are various similarities between the US GAAP and the IFRS-based financial statements. First, one of the similarities is seen in the performance elements covered by both sections of the balance sheets. In both GAAP and IFRS, the performance elements include the revenue or expenses, and assets or liabilities (Cussatt, Huang, & Pollard, 2018). Accounting quality under US GAAP versus. Another similarity between the two is that each of these financial statements serves a general purpose of offering a wide range of information about the operations of a firm and how the firm has invested in properties and equipment.
Differences
There are several differences evident between the US GAAP and the IFRS. The legal culture in the US plays a big role in how these two approaches differ. To begin with, in GAAP, only the cost method is used to initially record a fixed asset. The cost method includes recording the fixed asset’s acquisition cost plus the costs needed to render the fixed asset into the location and conditions it needs for it to be functional. As evident in the screenshot above, these include factors like the asset’s physical construction, renovation of current structures, interest on any loans, and current structures. On the other hand, the same criteria used by GAAP is used by an IFRS entity. The difference comes in the sense of the items that IFRS deems as the fixed asset’s cost for its utilization both in place and condition. These include, as evident from the screenshot above, the price of the purchase, import duties, nonrefundable purchase taxes, site preparation, advantages of employees building the assets, wages and testing costs.
A provision on how the “nonmonetary exchanges” for assets is measured is provided by the balance sheet guided by GAAP. This is not seen in the balance sheet that is guided by IFRS. The fair market value of the asset received is used by a nonmonetary exchange. The revaluation model and cost model are used in IFRS as a continuation in the recording of the fixed asset (Gordon, & Hsu, 2018). As evident from the screenshot, in the GAAP rule, the cost of leveling and clearing land, destroying a current building and other related costs are included in the land’s value which is not depreciated. This provision however is not offered by the IFRS.
The differences in these sets of rules are set forth by the legal structures which have been set in the United States. The reason for this is that in 1933, the Securities Act and 1934 the Security Exchange Act was passed by Congress. These acts were passed to offer a framework in which the accounting practices done by the publicly held companies could be standardized. Only the issues that affected the public companies in the United States were prioritized while coming up with these standards and therefore serves the GAAP rules that could differ with the IFRS in some aspects. In 1973, the Financial Accounting Standards Board (FASB) was established which took over the responsibility of maintaining the accounting standards in the United States. The FASB is usually advised by the Financial Accounting Standards Advisory Council (FASAC) on matters relating to the GAAP rules (Guillaume, & Pierre, 2016). This, therefore, implies that GAAP rules were created mainly to suit the US-based companies therefore it is likely to differ from IFRS which serves several nations.

References
Cussatt, M., Huang, L., & Pollard, T. J. (2018). Accounting quality under US GAAP versus IFRS: The case of Germany. Journal of International Accounting Research, 17(3), 21-41.
Gordon, E. A., & Hsu, H. T. (2018). Tangible long-lived asset impairments and future operating cash flow under US GAAP and IFRS. The Accounting Review, 93(1), 187-211.
Guillaume, O., & Pierre, D. (2016). The convergence of US GAAP with IFRS: A comparative analysis of principles-based and rules-based accounting standards. Scholedge International Journal of Business Policy & Governance, 3(5), 63-72.

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