![]() The US, where the Securities and Exchange Commission requires American companies to use GAAP when preparing their financial statements, is the only exception. The IASB, which sets IFRS, is globally influential its accounting standards are adapted to accounting rules in countries worldwide. GAAP is US-based, while IFRS is used worldwide. As a result, the theoretical framework and principles of IFRS leave more room for interpretation and sometimes require lengthy disclosures on financial statements. On the other hand, IFRS is standard-based, meaning no one is required to follow its guideline-though it’s recommended. GAAP is rule-based, meaning publicly traded US companies are lawfully required to follow its directives. While GAAP and IFRS both pertain to how financial documents are structured and filed, there are significant differences. ![]() What are the differences between GAAP and IFRS? China, India, and Indonesia do not follow IFRS accounting standards but have similar standards, while Japan allows companies to follow IFRS standards if they choose. It’s a set of guidelines followed by 15 of the G20 countries. International Financial Reporting Standards (IFRS) are the accounting standards set by the International Accounting Standards Board (IASB). Learn more: You Might Be Worth More Than Your Books Indicate: Why You Need to Consider Goodwill in Accounting What are International Financial Reporting Standards (IFRS)? The purpose of GAAP is to help investors analyze financial data and compare different companies to make informed financial decisions. It’s a rule-based system that all domestic and Canadian publicly traded companies must follow when filing financial statements. ![]() Generally accepted accounting principles (GAAP) is the accounting standard set by the Financial Accounting Standards Board (FASB) for the Securities and Exchange Commission (SEC) in the United States. What are generally accepted accounting principles (GAAP)? With these accounting standards in place, people can be sure businesses are accurately reporting their finances and, in turn, make informed decisions about where they invest their money. These two sets of guidelines-one American and one international-are what most companies follow when preparing financial statements. Here is where generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS) come in. It would also be much harder to compare how different companies are performing. Without accounting standards, businesses could easily skew their financial results to make themselves look more successful.
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