The United States’ authoritative bodies are essential for establishing financial accounting and reporting standards that both private and public organizations will have to follow in order to operate successfully in their relative markets and spheres of operations. For example, the Financial Accounting Standards Board (FASB) sets standards through an inclusive and transparent process aimed at promoting financial reporting that provides valuable information to investors and other entities that use financial reports (Warren, Jones, & Tayler, 2019). FASB has the authority to establish and interpret the generally accepted accounting principles (GAAP) in the country for all organizations operating them (FASB, 2022). The GAAP represents a standardized framework that companies, non-profits, and governments should follow when it comes to preparing and presenting a financial statement, including any associated party transactions.
In contrast, International Financial Reporting Standards (IFRS) represent international accounting standards that state how specific types of transactions and other events must be reported in financial statements; they are issued by the International Accounting Standards Board (IASB). The critical difference between GAAP and IFRS is that the latter is principle-based, while the former is based on the following strict rules (Warren et al., 2019). The disconnect between the two sets of standards can be seen in specific interpretations and details, with IFRS offering less detail compared to the generally accepted accounting principles (Warren et al., 2019). On the other hand, the IFRS core principles and the theoretical framework provide more room for interpretation but needs lengthy disclosures of financial statements. Besides, the information found on the IFRS websites suggests that the principles are more logically sound, with the possibility of a better representation of the economics of business transactions.
References
FASB. (2022). Financial accounting standards board. Web.
Warren, C., Jones, J., & Tayler, W. (2019). Financial and managerial accounting (15th ed.). Cengage Learning.