Generally Accepted Accounting Principles (U.S. GAAP) Essay Example for Free

Generally Accepted Accounting Principles (U.S. generally accepted accounting principles) EssayThe united States Generally Accepted Accounting Principles (U.S. GAAP) and the International Financial Reporting Standards (IFRS) are both effective slipway to report financially account for ones course assets but they abide several differences. in this paper I will attempt to outline a few of the more than signifi cornerstonet differences and let in you to make up your mind as to which of these devil systems is the better one.The first difference that is widely catamenia between the dickens methods is that U. S. GAAP is rules based and IFRS is principle based. This means that IFRS allows more for adaption of the circumstances and allows for professional public opinion while U.S. GAAP is more stringent and less forgiving. The argument back and forth is that the rules for U.S. GAPP are in any case large and broad stroked which doesnt allow for different odd situations, while i t is argued that the IFRS is too biased which can allow for too much manipulation.A primary difference between the U.S. GAAP and the IFRS is the way the business financial statements report the value of the communitys property and holdings. The U.S. GAAP method utilizes the Historic represent Principle (HCP) while the IFRS uses the Fair Market Value (FMV). nether the HCP the asset owned by the company if forever recorded at the price for which it was initially purchased while the FMV approach allows for a periodic re-assessment of the current value of the asset.This has both positive and negative effects based on the economy and the ho using market. oer time you would expect that the value of property to rise, for example if a company had bought my parents 2 bedroom post for the listed price of $19,500 in 1980 knowing that the same house is now appraised at $105,000 then it would be near to re appraise the house under the FMV as the asset is worth a lot more than the original $1 9,500. The down side for using the FMV would have been in 2009 when the housing market collapsed. At that accuse the house was appraised at $87,000. If the year prior the company recorded its asset at $105,000 then it would have taken a loss when the house was reappraised. So you can see that utilizing the FMV in this case is a gamble based on the fluctuation of the outside market and also raises the question of how often should the re-appraisals be done to be the most advantageous to the company.The next difference I want to highlight is the go bad In, First Out (LIFO) method. This is a method commonly used in the United States under the U.S GAAP primarily because it helps with tax purposes. Utilizing LIFO the company applies the latest cost of providing the goods to the entire supply inventory disregardless of what the company paid for the good already in stock. This shows a decrease in the gross hit margin therefore lowering the taxes at the end of the year. For example if a company manufactures 1,000 tubes of toothpaste a calendar month at $1 a tube and sells them for $2 each then they would make a attain of $1,000 a month or $12,000 a year. If the price of manufacturing the toothpaste went up to $1.50, 6 months into the year then using the LIFO method the company would record that there profit is only .50 a tube or $6,000 a year and would only pay taxes on that $6,000 vice the $12,000 even though they made the undecomposed dollar profit on the toothpaste for the first 6 months. This is a practice that is used primarily in the U.S. because of our tax laws and not endorsed by other countries or under the IFRS.Another difference between the two classs falls under the category of Liabilities. A liability as defined in the text is An stinting obligation (a debt) payable to an individual or organization outside of the business. This difference between the two programs is slight and goes back to my first paragraph dealing with rules versus principle based assessments. Both IFRS and U.S. GAPP accept the that the forthcoming event will probably take place but the IFRS defines the word probable as anything great than 50% while the U.S. GAAP with its more stringent rules defines probable as 75-80%. This means that more liabilities would be recognized with IFRS then U.S. GAAP.The last difference that I will go over is that of brand label and patents. Under the stringent rules of U.S. GAAP, the only time a company can account for the capitalization or equity of a patent or brand is if the company purchased the patent from an outside source. If it was thought up or created by the company internally the company would have to record the expenses of the development on the income statement. Under IFRS the company would be allowed to count the potential equity based on the probable future benefits. almost of the populace has already adopted the IFRS and the Financial Accounting Standards Board is working on a world wide solution in bridging the gap between these two programs. In closing the U.S. GAAP program is more stringent while the IFRS allows for more flexibility. Although this flexibility associated with the IFRS program seems like it would be more proficient to more companies, the argument would still be is flexibility better or just a overleap of integrity.ReferencesHarrison, Horngren, Thomas 9th EditionSt Josephs University (http//www.sju.edu/int/academics/hsb/accounting/IFRS.html) Bass, Solomon Dowell (http//www.bsd-cpa.com/index.php/comparing-and-contrasting-international-financial-reporting-standards-ifrs-and-generally-accepted-accounting-principles-gaap)