There are different types of accounting standards that are followed around the globe. The most commonly used accounting standards are International Financial Reporting Standards or IFRS and Generally Accepted Accounting Principles or GAAP.
IFRS refers to the international financial reporting standards that are followed globally and includes instructions on how certain transactions should be reported in financial statements. IFRS is issued by the International Accounting Standards Board (IASB).
GAAP refers to a common set of accounting standards and procedures that a company must follow at the time of preparation of financial statements.
Let us look at some of the differences between IFRS and GAAP
| International Financial Reporting Standard | Generally Accepted Accounting Principles |
| International Accounting Standard Board (IASB) | Financial Accounting Standard Board (FASB) |
| Globally adopted in around 144 countries | Only adopted in the US |
| Principles | Rules |
| IFRS allows only FIFO (First In First Out) inventory method for valuation of inventories | GAAP uses both FIFO (First In First Out) and LIFO (Last In First Out) method of inventory valuation |
| IFRS allows inventory write down reversal | GAAP does not allow inventory write down reversal |
| In IFRS, extraordinary items are not segregated and are included in the income statement | In GAAP, the extraordinary items are segregated and are shown below net income in the income statement |
| IFRS uses a revaluation model for valuation of fixed assets | GAAP uses a cost model for fixed asset valuation |
| Development costs under IFRS can be capitalised, provided certain conditions are met | Development costs cannot be capitalised in GAAP, it is always treated as an expense |
Also see:Â MCQs on GAAP
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