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Generally Accepted Accounting Principles

Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) are the two primary accounting frameworks with core peculiarities. GAAP, which is accepted in the United States, presents accountants with a rules-based framework that allows them to operate under a strict code of conduct, which leaves little room for interpretation. On the other hand, IFRS is fundamentally different since it operates under the principle-based approach that allows accountants to interpret the principles to fit their companies situation. From this discrepancy, the speaker highlights three specific differences that separate the two approaches: the treatment of inventory, research, and current assets (Emery, n.d.). In my opinion, the differences in managing inventory are the most crucial reason for the United States not to adopt the IFRS. In GAAP, an inventory treatment of last-in, first-out (LIFO) is allowed. On the other hand, IFRS bans this practice because it may lead to an artificially low net income and failure in portraying the actual flow of inventory items through a company (Abdallah, 2016, p. 18). This difference serves as the main reason why American accountants do not operate under the IFRS because of tax purposes.

The two reasons for not adopting IFRS in the United States that the presenter did not mention are fixed assets and investment property treatment. Abdallah (2016) examines the challenges of the shift from GAAP to IFRS and reports that unlike IFRS that acknowledges investment property as a separate category, GAAP lacks it, which creates an issue for multinational companies. As per the fixed assets, GAAP obliges accountants to register long-live assets like equipment, buildings, and furniture at a historical price. On the other hand, IFRS states that these assets can be later reassessed at market value (Abdallah, 2016). These two differences between the framework show that the American accounting system is not ready to adopt IFRS.

References

Abdallah, W. (2016). The conversion from US-GAAP to IFRS and transfer pricing: Irreconcilable differences. Journal of Applied Business Research (JABR), 33(1), 17-26.

Emery, R. (n.d.). International Financial Reporting Standards [Video]. Linfield College Online and Continuing Education.

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