Overview of GAAP vs. IFRS
GAAP (Generally Accepted Accounting Principles)
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The generally accepted accounting principles, or GAAP, are an accounting framework
unique to the United States.
The Financial Accounting Standards Board (FASB) created and maintains it.
Rule-based, offering comprehensive and prescriptive instructions.
Required for US businesses with financial reporting requirements to the public.
The International Accounting Standards Board (IASB) created the global accounting standard
known as IFRS (International Financial Reporting Standards).
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147 nations use it, including those in the EU, Asia, and South America.
Based on principles, emphasizing broad rules and interpretation.
Strives to make financial reporting transparent and consistent worldwide. Use of IFRS
Worldwide
Use of IFRS Worldwide
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IFRS is supported in about 160 jurisdictions.
147 mandate it for businesses that are publicly traded.
Although the US SEC has talked about convergence, full adoption is still unlikely in the
near future.
IFRS helps nations with significant levels of foreign investment and business.
Bodies in Charge of Governance
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GAAP is supervised by the FASB (U.S.).
IASB (UK): Founded in 2001 and headquartered in London's Canary Wharf, this
organization oversees IFRS.
Which one is better?
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For strict compliance and regulatory consistency, GAAP is perfect.
IFRS might more accurately depict the financial realities of transactions, especially for
global corporations.
IFRS can improve comparability and transparency for foreign investors or businesses.
Differences
Accounting
Element
Inventory
Valuation
Inventory
Reversals
Revenue
Recognition
GAAP (U.S.)
IFRS (International)
Allows LIFO, FIFO, and
Weighted Average
Does not allow LIFO; uses FIFO and
Weighted Average only
Prohibited
Permitted if inventory value recovers
Governed by ASC 606—specific, Based on a 5-step model, aligned with
detailed guidance
the same conceptual principles
Research is expensed, but Development
R&D Expenditures Expensed as incurred
costs may be capitalized
Investment
Based on legal form of
Based on substance over form and timing
Valuation
investment (e.g., debt vs. equity) of cash flow realization
Fixed Assets
Not permitted—assets are
Allows revaluation of certain fixed assets
Revaluation
reported at historical cost
to fair value
Disclosure
More standardized and
Often requires extensive narrative
Requirements
prescriptive
disclosures to explain judgments
Extraordinary
No separate reporting—integrated in
Reported separately
Items
income
COVID-19 and Accounting Standards: Modifications to IFRS 16
Early in 2020, the COVID-19 pandemic broke out, causing severe economic disruptions all over
the world. Widespread lockdowns, halted business operations, and financial distress among
individuals and businesses were some of the most immediate effects.
To alleviate financial strain, many lessors responded by offering lessees rent concessions, such
as rent reductions, waivers, or deferrals. These compromises frequently resulted from
government orders or public policy incentives that promoted financial relief, though they were
occasionally the consequence of direct negotiations.
Any alteration to the lease payments under IFRS 16 leases typically necessitates determining
whether the change counts as a lease modification, which entails a shift in the lease's scope or
consideration. It can be difficult, time-consuming, and inconsistent to determine and apply this
treatment under standard IFRS rules, particularly in times of crisis like COVID-19.
The International Accounting Standards Board (IASB) launched a project to address this problem
by offering simplified guidance and practical relief for accounting rent concessions brought on
by COVID-19.
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Offer lessees who are undergoing pandemic-related rent reductions useful
accounting relief.
During the COVID-19 pandemic, lessen the administrative strain on preparers.
On May 28, 2020, the IASB published the first amendment, "Covid-19-Related Rent
Concessions (Amendment to IFRS 16)."It went into effect for yearly periods starting
on or after June 1, 2020.As the pandemic continued, follow-up changes were made,
such as an extension past June 30, 2021, and other relevant updates.
Important Modifications to IFRS 16:
Lessees may choose not to determine whether rent reductions resulting directly from COVID-19
qualify as lease modifications. Alternatively, these concessions can be recorded as variable lease
payments, with the impact being recorded in profit or loss at the time of the event.
Date
Development
Project introduced and
17 April 2020
discussed by the IASB
Exposure Draft (ED/2020/2)
24 April 2020
published
Comments
Recognized the urgent need for accounting relief
due to widespread lease renegotiations
A short 14-day comment period (ending 8 May
2020) reflected the urgency of the issue
Titled Covid-19-Related Rent Concessions,
28 May 2020 Amendment to IFRS 16 issued effective for periods starting on or after 1 June
2020
31 March
Extension: Rent Concessions Allowed for continued relief as pandemic
2021
Beyond 30 June 2021
conditions persisted
22 September Amended by “Lease Liability Effective from 1 January 2024—addressing
2022
in a Sale and Leaseback”
broader issues, not directly related to COVID-19
All of the following requirements must be fulfilled in order to apply this relief:
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The COVID-19 pandemic directly caused the change in lease payments.
The original consideration and the revised one are essentially the same or less.
Payments due on or before June 30, 2021 (later extended), are covered by the
concession.
The lease's other terms and conditions have not changed significantly.
More General Accounting Aspects While COVID-19
COVID-19 presented several financial reporting issues beyond IFRS 16:
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Devaluation of assets and decreased cash flows result in impairment assessments (IFRS
9, IAS 36).
Going concern assessments as a result of company closures and lower profits.
Making provisions for contract obligations, termination benefits, and restructuring under
IAS 37.
Revenue recognition and customer contract modifications (IFRS 15).
Adjustments to fair value measurement (IFRS 13) in the face of fluctuating market prices
References :
https://www.investopedia.com/ask/answers/011315/what-difference-between-gaap-andifrs.asp
https://www.iasplus.com/en/projects/completed/leases/ifrs-16-covid-19