The International Financial Reporting Standards (“IFRS”), issued by the International Accounting Standards Board (“IASB”), is the accepted accounting standards for more than 100 countries around the world. The Generally Accepted Accounting Principals (“GAAP”), however, as issued by the Financial Accounting Standards Board (FASB), is only used in the United States.
IFRS is a principles-based accounting standard, and its broad guidelines can lead to varied interpretations for similar transactions, while GAAP is a rules-based accounting standard and is more rigid in its interpretation. There is an ease of comparability of financial information of different companies under GAAP due to the set rules.
IFRS and GAAP have concepts that lead to similar accounting conclusions as both the IASB and the FASB have had joint collaborative programs in an effort to converge topics under both accounting standards. There are, however, still differences that exist between both standards.
Differences Between IFRS and GAAP
Although not an exhaustive list, the most common differences between both standards are noted below:
What Do the Differences Mean for Your Company?
Identifying and appropriately accounting for these differences can be challenging. There is a high risk of accounting error, delays and potential control deficiencies if an entity fails to properly identify and account for such differences. As a result, organizations, especially U.S. companies with foreign presence, U.S. companies considering transactions abroad (equity raises, debt, acquisitions etc.), foreign entities seeking to enter into transactions in the U.S. market, foreign private issuers, etc., need to understand these differences and appropriately respond to them in their financial statements.
How MorganFranklin Can Help
We work with our clients to understand the unique challenges that the clients face and design a conversion approach that better suits the company and its risk profile. Our conversion approach generally focuses on gaining an understanding of the different standards applicable to the organization and performing the following activities:
- Identification of the significant differences between both standards as it pertains to the organization
- Quantification of GAAP to IFRS differences (or vice versa)
- Preparation of compliant financial statements
We work closely with your team to determine existing pain-points, while focusing on potential areas of risk. We leverage the expertise within our IFRS Capabilities Team, as well as our technical accounting and transactions support group, risk advisory, enterprise cloud applications, and business processes teams to assist our clients during the process.