Organizations are forced to abide by specific accounting requirements depending on where they operate. For example, companies from the United States have slightly different rules compared to firms from a European country. In particular, Generally Accepted Accounting Principles (GAAP) provide US companies with regulations, while many organizations outside the United States focus on the International Financial Reporting Standards (IFRS). This information demonstrates that the two sets of rules are used in various locations. However, one should state that the selected principles and standards imply a few differences in their contents. While various discrepancies exist between GAAP and IFRS, it is reasonable to focus on presentation and recognition differences.
The first difference manifests itself in the fact how GAAP and IFRS present assets in a balance sheet. On the one hand, GAAP focuses on the idea that current assets should be listed first. These principles rely on descending order and mention the most liquid assets first, followed by the least liquid ones (Gavin, 2019). On the other hand, IFRS relies on the opposite approach that makes organizations start from the least liquid assets and proceed to the most liquid ones (Gavin, 2019). This information demonstrates that GAAP and IFRS rely on different concepts and ideas. Companies in the USA start focusing on more liquid assets because they are more easily turned into cash, while foreign organizations consider these assets at the end of the line. That is why the two selected accounting standards offer different regulations in terms of asset presentation, and organizations should be aware of these peculiarities.
The second difference refers to how GAAP and IFRS recognize the same accounting phenomena, and it is reasonable to focus on the available inventory valuation methods. Under GAAP, there are three specific methods that can be applied. The First In First Out (FIFO) approach relies on the natural flow and stipulates that the first item is sold the first (Gavin, 2019). The Last In First Out (LIFO) method introduces the opposite strategy and stipulates that the last inventory item is to be the first sold (Gavin, 2019). Finally, the Weighted Average approach draws attention to the average cost of items that are left in inventory (Gavin, 2019). This discussion demonstrates that GAAP recognizes all the possible asset valuation methods, while IFRS excludes LIFO (PwC, 2022). In other words, firms from outside the United States are deprived of a single approach compared to US-based organizations.
In conclusion, the paper has demonstrated that GAAP and IFRS have a few differences, even though they are designed to govern similar phenomena. Depending on where an organization operates, it can follow various accounting regulations in terms of how some issues should be measured, recognized, and presented. The identified evidence has revealed that the selected principles and standards are essentially different in terms of how they present assets in balance sheets. The two sets follow opposite strategies regarding the value of asset liquidity. Simultaneously, these regulations follow various approaches regarding recognizing the available inventory valuation methods. US-based firms are provided with three approaches, while organizations from outside the United States are only allowed to deal with two of them. Even though GAAP and IFRS imply essential differences, it is impossible to state that any of them is better. Organizations and accountants should be familiar with the two to manage financial affairs effectively.
References
Gavin, M. (2019). GAAP vs. IFRS: What are the key differences and which should you use. Harvard Business School Online. Web.
PwC. (2022). IFRS and US GAAP: Similarities and differences. PricewaterhouseCoopers.