Difference Between GAAP and IFRS on Revenue Recognition (With Table)

There seem to be two major costing systems adopted by businesses all over the world. Firms in the United States employ GAAP, or generally accepted accounting principles, whereas multinational investors use IFRS, or International Financial Reporting Standards. Financial reporting rules differ from one nation to the next.
The contrasts between these two systems are lime-lighted in this article.

GAAP vs IFRS

The difference between GAAP and IFRS is that in the United States, GAAP refers to a set comprising auditing standards but is not always internationally abided whereas the International Financial Reporting Standards (IFRS) are a globally acknowledged collection of accounting standards that are implemented in over 120 countries spanning European, African, and Asian subcontinents. In other words, GAAP rules and regulations are followed in the USA and IFRS is a solid worldwide set of regulations followed everywhere.

GAAP aka generally accepted accounting is a set of standards that defines and accounts for the precise criteria under which income is earned. If a crucial event occurs, revenue is often realized, and the cash amount is easy to upgrade for the firm. When a product is available, capital accounting is pretty easy, and money is recorded when the client purchases such goods.

The cash basis, as defined by GAAP, requires revenue to be recognized when it is earned rather than when it is received. This implies that when a business signs the contract for a service or a client places an order, you must record revenue.

IFRS on the other hand, The International Financial Reporting Standards (IFRS) are a collection of principles that ensure balance sheets are uniform, fair, and equivalent all around the planet. The International Accounting Standards Board (IASB) publishes the Accounting Standards. They define how businesses must keep and publish their accounting, as well as the sorts of trades and other involved collections that must be reported. The International Financial Reporting Standards (IFRS) were created to provide a traditional budgeting language so that firms and their income reports could be appropriate and adequate from one firm to the next and from one country to another.

Table of Comparison Between GAAP and IFRS

Parameters of ComparisonGAAPIFRS
DefinitionGAAP is limited to the USA and refers to a set comprising auditing standards, necessary for trade practices and standards.The International Financial Reporting Standards (IFRS) are a globally acknowledged collection of accounting standards that are implemented in over 120 countries.
FunctionsIncome statement accountants follow all of the laws and regulations that have been set.Throughout corporate governance, identical criteria are applied.A balance sheet is another name for this. The International Financial Reporting Standards (IFRS) have an impact on how balance sheet components are reported.
CountryUnited States of America120 countries are European, African and Asian countries.
FeaturesThe Office Of Management And Budget establishes financial reporting procedures in the U. S., which are based on financial statements (GAAP).The International Accounting Standards Board (IASB) issues IFRS, which governs how lawyers must keep and disclose corporate records.
PrinciplesThe GAAP follows strict principles and laws only in the states under the USA.IFRS has an international board of law enforcers who look upon financial records and trades.

What is GAAP?

Generally Accepted Accounting Principles is an acronym for GAAP. GAAP is a collection of tax laws and customary business practices that has evolved through time. Firms offer it to correctly arrange their market reports into financial records, summarize the accounting data into cash flows, and reveal specific supporting data.

Tax receipts must be recognized pursuant to the following calculation, which is a characteristic of accrual accounting, according to GAAP (generally accepted accounting principles). This indicates that revenues are recorded on the net income statement when it is acknowledged and generated, rather than when it is received in cash or in-hand money.

For an operating income activity to be used in revenue within a sales transaction, it must be entirely or substantially completed. There has to be a sufficient level of assurance that the generated income payment would be received. Finally, the income and its related expenditures must be recorded in the same income statement, and according to an accrual basis.

Some principles of GAAP are listed below:

  1. Regularity principle: Financial statements professionals rigorously follow established norms and regulations.
  2. Materiality principle: Quarterly accounts completely reflect the financial status of the organization.
  3. Prudence principle: Gambling has no bearing on business information reporting.

What is IFRS?

The International Financial Reporting Standards (IFRS) are a collection of principles that ensure balance sheets are uniform, fair, and equivalent all around the planet. The International Accounting Standards Board (IASB) publishes the Accounting Standards. These define how businesses must keep and publish their accounting, as well as the sorts of trades and other involved collections that must be reported.

The International Financial Reporting Standards (IFRS) were created to provide a traditional budgeting language so that firms and their income reports could be appropriate and adequate from one firm to the next and from one country to another. The International Financial Reporting Standards (IFRS) were developed in the European Union with the goal of making company transactions and accounts accessible throughout the continent.

The concept soon gained traction throughout the world, since having a common speech-enabled more global contact. Whereas the United States and a few other nations do not utilize IFRS, the majority of nations do, rendering IFRS the most widely used worldwide set of rules. The goal of the International Financial Reporting Standards (IFRS) is to provide social capacity and disclosure. IFRS allows employers and money managers to understand exactly whatever has been going on with a firm, allowing them to make wise choices.

In many aspects, the IFRS structure is founded on rules; the report sets a collection of fundamentals, as well as a set of needed papers that make up the business report. It establishes the basis by defining concepts such as holdings, debts, equity, revenue, and costs.

Main Differences Between GAAP and IFRS

  1. GAAP is limited to one continent but IFRS is internationally valid.
  2. GAAP is aimed at the USA but IFRS is aimed at 120 countries including European, African, and Asian countries.
  3. The International Financial Reporting Standards (IFRS) are less stringent in defining revenues and allow firms to disclose revenue sooner, whereas GAAP is more stringent in its regulations.
  4. The GAAP board of directors are not internationally governed but in the case of IFRS, it is internationally governed.
  5. GAAP stands for Generally Accepted Accounting Principles and IFRS stands for International Financial Reporting Standards.

Conclusion

There are differences in the way profitability reports are computed between IFRS as well as other countries’ Generally Accepted Accounting Principles (GAAP). In the United States, GAAP refers to a set of accounting principles and standards. The International Financial Reporting Standards (IFRS) are a globally acknowledged collection of accounting standards that are utilized in over 120 countries spanning Europe, Africa, and Asia.

Anyone working with economic data and financial activities like revenue recognition has to understand these platforms, how they vary, and where each one implements sound accounting principles.

References

  1. https://www.investopedia.com/terms/i/ifrs.asp
  2. https://www.accountingtools.com/articles/what-is-gaap.html
x
2D vs 3D