GAAP vs IFRS on Revenue Recognition: Difference and Comparison

Firms in the United States employ GAAP or accepted accounting principles, whereas multinational investors use IFRS or International Financial Reporting Standards.

Key Takeaways

  1. GAAP and IFRS have different revenue recognition guidelines, affecting how companies report their earnings.
  2. GAAP requires revenue to be recognized when it is realized or earned. In contrast, IFRS requires revenue to be recognized when it is probable that the economic benefits associated with the transaction will flow to the entity.
  3. Companies operating may need to comply with GAAP and IFRS standards when reporting their financial statements.

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) is 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 vs IFRS

GAAP, aka accepted accounting, is a set of standards that defines and accounts for the precise criteria under which income is earned.

The cash basis, as defined by GAAP, requires revenue to be recognized when it is earned rather than when it is received.

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.

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Comparison Table

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 have evolved through time.

Tax receipts must be recognized pursuant to the following calculation, which is a characteristic of accrual accounting, according to GAAP (accepted accounting principles).

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 will be received.

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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 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.

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.

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.

Main Differences Between GAAP and IFRS

  1. The GAAP board of directors are not internationally governed, but in the case of IFRS, it is internationally governed.
  2. GAAP stands for Generally Accepted Accounting Principles, and IFRS stands for International Financial Reporting Standards.
Difference Between GAAP and IFRS on Revenue Recognition
References
  1. https://www.investopedia.com/terms/i/ifrs.asp
  2. https://www.accountingtools.com/articles/what-is-gaap.html

Last Updated : 14 October, 2023

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23 thoughts on “GAAP vs IFRS on Revenue Recognition: Difference and Comparison”

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