2.5 US GAAP vs IFRS

Question 1

In comparison to european countries, the US has…

1.
2.

Answer 1

• no statutory requirements for accounting
• only a small minority of companies in the US have to follow US GAAP (those that are SEC registered, i.e. listed companies)

Question 2

SEC | Definition

Answer 2

• securities and exchange commission
• companies that are SEC registered have to obey the SECs accounting and auditing rules

Question 3

FASB | Defintion

Answer 3

• financial accounting standards board
• its the US accounting standard setter
• US equivalent to the IASB. It issues the standards and the SEC endorses them

Question 4

What are the high level differences between the IFRS and the US GAAP?

IFRS
1.
2.
3.

US GAAP
4.
5.
6.
7.

Answer 4

IFRS
- principles based
- focus more on providing the conceptual basis for accountants to follow rather than list of detailed rules
- greater permission or requirement in IFRS to use FAIR VALUE rather than historical cost compared to US GAAP

US GAAP
- rules based
- rules include specific criteria, thresholds, examples, scope restrictions, exceptions
- far more detailed accounting regulation (companies must make the worlds most extensive disclosures when presenting their financial statements)
- US GAAP contains fewer explicit options

Question 5

Whats the difference between adoption and convergence?

Answer 5

• adoption: national rules are set aside and replaced by requirement to use a different set of standards (eg EU adoption of IFRS)
• convergence: gradual change from national accounting rules towards a different set of standards (eg australias convergence to IFRS)

Question 6

US GAAP and IFRS - Who wins?

Answer 6

• IFRS
• norwalk agreement: plan to achieve convergence by elimination variety of differences between IFRS and US GAAP

Question 7

What can be said about the convergence project? Whats the goal?

1.
2.
3.
4.

Answer 7

• still on going: easy difference already removed, more fundamental ones still coming
• collaboration on new joint standards
• goal: not identical standards, but generally more comparable, close aligment of principles
• move towards more principles based standards

Question 8

Wha is a recent development in the US?

Answer 8

• 2007: SEC allows foreign companies listed in US stock market to report under full IFRS (no reconciliation required)
• 2015: plane to allow reporting under IFRS for local companies, but didnt happen