IFRS vs. GAAP: Which Is Best-Suited for You?

 IFRS and GAAP are the most popular reporting standards adopted by countries. 

These guidelines help in creating uniformity among accounting methods used in different companies and countries.

Accounting is an important activity to understand the financial health of an organization and determines business activities. The two most common accounting standards are IFRS and GAAP. If you are planning to opt for a certification course and are still deciding, this article will help you to make the right decision.

Table of Contents

• What is IFRS?
• Features of IFRS?
• IFRS Certification: Career Opportunity and Growth Scope?
• Scope of IFRS Certification in India?
• Who Can opt for IFRS Certification?
• Roles of an IFRS Certified Professional?
• Why Should You Choose IFRS Certification?
• Growth Prospects for IFRS Professionals?
• What is GAAP?
• IFRS vs. US GAAP
• Is GAAP better than IFRS? Which one is better suited?

Accounting standards are usually guidelines for accounting, usually set by a governing body, to help firms to present their income, expenses, assets and liabilities in a set standard method. Let’s discuss IFRS vs. GAAP.

What is IFRS?

IFRS (International Financial Reporting Standards) is a set of accounting standards developed by the independent, not-for-profit organization, International Accounting Standards Board (IASB). It was done with a goal to provide a global framework for the preparation of financial statements rather than industries or organizations adopting their own methods. Currently, this method is used by organizations in more than 100 countries. 

At present, there are 17 different standards in IFRS.

1. IFRS 1 First-time adoption of International Financial Reporting Standards  
2. IFRS 2 Share-based payment  
3. IFRS 3 Business combinations  
4. IFRS 4 Insurance contracts  
5. IFRS 5 Non-current assets held for sale and discontinued operations  
6. IFRS 6 Exploration for and evaluation of mineral resources  
7. IFRS 7 Financial instruments: disclosures  
8. IFRS 8 Operating segments  
9. IFRS 9 Financial instruments  
10. IFRS 10 Consolidated financial statements  
11. IFRS 11 Joint arrangements
12.  IFRS 12 Disclosure of interests in other entities  
13. IFRS 13 Fair value measurement  
14. IFRS 14 Regulatory deferral accounts  
15. IFRS 15 Revenues from contracts with customers  
16. IFRS 16 Leases
17. IFRS 17 Insurance Contracts

Features of IFRS

The following are the features of IFRS:

1. Fair presentation with IFRS: Fair presentation needs the faithful representation of the transaction effects and other events as per the definitions and recognition criteria for income and expenses, assets and liabilities that have been set out in the IFRS Framework.

2. Going concern: Financial statements are present on-going concern basis until the management intends to liquidate the entity or it decides to cease trading, or it has no realistic alternative other than doing so.

3. Accrual basis of accounting: An entity shall recognize items as liabilities, assets, equity, income and expenses when they fulfil the definition and recognition criteria for these elements in the IFRS Framework.

4. Materiality and aggregation: Each material class of similar items should be presented separately. Items of dissimilar nature or function should be presented separately except if they are immaterial.

5. Offsetting: Offsetting is generally forbidden in IFRS except in certain standards that require offsetting whenever specific conditions are satisfied.

6. Frequency of reporting: IFRS mandates that at least a complete set of financial statements should be presented annually. However, generally listed companies also publish interim financial statements for which the presentation is as per IAS 34 Interim Financing Reporting.

7. Comparative information: As per IFRS, entities need to present comparative information in respect of the preceding period for all amounts that are reported in the financial statement of the current period. In addition to it, comparative information should be provided for narrative and descriptive information in case it is relevant to understanding the financial statement of the current period. The standard IAS 1 needs an additional statement of the financial position when an entity applies an accounting policy retrospectively.

IFRS Certification: Career Opportunity and Growth Scope

IFRS certification can benefit your career if you belong to the field of accounts and are eager to make a lucrative career in finance and accounts. Many countries including India, are moving to IFRS accounting standards. This is why knowledge of IFRS is very important.

IFRS stands for International Financial Reporting Standard and is an internationally accepted language for business accountancy presentations. In other words, IFRS is a singular accounting language. You can learn about IFRS through online certifications. In this blog, we will discuss what IFRS is and how it can benefit you.

Scope of IFRS Certification in India

As IFRS is globally recognized, Indian professionals need to be well versed in it. There is a growing demand for IFRS professionals as more and more companies are adapting to this international standard. To meet the growing demand, institutes like IACT Global have created an online IFRS course for accounting and financial professionals, which can be easily completed from the comfort of your home or office.

Indian companies are increasingly recruiting professionals with knowledge and experience of IFRS along with their accounts and finance degrees. Hence, finance professionals who wish to excel in their careers in finance should consider taking up IFRS certification to improve their career prospects.

The Ministry of Corporate Affairs, Government of India through a notification dated 16 February 2015 issued the Companies (Indian Accounting Standards) Rules, 2015 (Rules) which lay down a roadmap for companies other than insurance companies, banking companies and non -banking finance companies (NBFC) for implementation of Ind AS converged with IFRS.

The changeover to Ind AS standards has set in motion the process of significantly improving the quality of and transparency in financial reporting by Indian companies. The future looks bright for accounting and finance professionals in India!

Who Can opt for IFRS Certification?

Professionals with Commerce, CA, CPA and CFA qualifications can acquire an edge over others with IFRS certification. They can become at par with finance professionals worldwide by acquiring IFRS certification through online courses available on naukri.com, eLearning platform.

Roles Of an IFRS Certified Professional

As you do research, you will be amazed at the growing demand for IFRS certified professionals in India. Let’s have a look at the various roles an IFRS certified person can choose from:

• The banking and insurance sector has a huge demand for IFRS professionals
• Apart from banks, insurance sectors, non-banking financial companies and listed companies have also been following IFRS guidelines since 2011.
• Advisory companies who offer their services to accounting and finance firms require consultants with IFRS certification.
• IFRS experts can also start their own private consultancy firms advising clients in the transition towards IFRS standards.
• IFRS professionals can also take up the role of an IFRS trainer in the financial and education industry.

Why Should You Choose IFRS Certification?

Organizations prefer candidates who have an international level of qualification in financial & accounting operations. Such professionals can handle their financial operations by IFRS standards since they are skilled in handling unexpected situational crises. The following reasons make an IFRS professional more significant:

• 120 countries have adopted the IFRS standards for financial and accounting operations.
• The implementation of these standards is a very complex and time-consuming process. This is why organizations require skilled and certified IFRS professionals.
• Consistent modifications in the IFRS standards by the regulators also lead to an increase in demand for experienced IFRS professionals.

Growth Prospects for IFRS Professionals

If you acquire IFRS certification, you will have a growth spurt in your career. This is because of the following reasons:

• IFRS professionals are in huge demand in India
• Finance professionals equipped with IFRS certification have an advantage over others as they have knowledge of international accounting standards
• IFRS qualification will make you eligible to work in 100+ countries
• As IFRS guidelines are constantly updated, demand for IFRS experts will continue to be on the rise.

Finance is an exciting sector with changes happening at a rapid pace across the world. With the recent demonetization initiative taken by the Government of India, the importance of understanding finance and staying abreast with the latest updates cannot be overstated!

What is GAAP?

Generally Accepted Accounting Principles (GAAP) is a set of accounting and financial reporting standards. Unlike IFRS, there is no universal GAAP standard. It varies from one geographical location or industry to another. GAAP was adopted by the U.S. Securities and Exchange Commission (SEC) and its principles are guided through 10 key concepts including:

1. Principle of Regularity: Ensuring the accountant is adhering to GAAP rules and regulations as standard.
2. Principle of Consistency: Accountants should keep consistency in applying the same standards in the entire reporting process. This consistency allows financial comparability between periods.
3. Principle of Continuity: The assumption of business continuing to operate should be there while valuing the assets.
4. Principle of Sincerity: Accountants should provide an impartial and accurate depiction of the financial situation of the company.
5. Principle of Non-Compensation: Accountants should maintain transparency and include both positives and negatives. There should not be any expectation for debt compensation. 
6. Principle of Prudence: Financial data representation should be based on facts rather than being mere speculation.
7. Principle of Permanence of Methods: Financial reporting should involve consistent use of principle to ensure comparability of financial information.
8. Principle of Periodicity: Entries should be reported across appropriate periods of time. 
9. Principle of Materiality: Accountants are expected to remain transparent and disclose accounting as well as financial data in reports.
10. Principle of Utmost Good Faith: As the name suggests, the principle expects parties to remain honest in all transactions. 

IFRS vs. GAAP

IFRS is adopted by more countries in comparison with GAAP.  Though IFRS and GAAP are two of the widely used standards in accounting, there are a number of differences that you need to understand to find out which one is perfect for you:

• Conceptual Approach: The major difference between the two approaches lies in the conceptual approach. The GAAP standard is based on rules, where the focus is more on literature. IFRS, on the other hand, is principle-based and the review of the facts pattern is more thorough.
• Geographical dominance in terms of usage: The GAAP standard is popular in the USA; though there has been a shift towards IFRS in recent years. The IFRS standard is the most popular standard globally and is used across more than 110 countries, including the European Union.
• Inventory: Under the IFRS standard, the LIFO method cannot be used whereas, under the GAAP standard, there is the choice between LIFO and FIFO.

FIFO (first-in, first-out) means that the goods first added to an inventory are assumed to be the first goods removed from inventory for sale. LIFO (last in, first out) means that the goods last added to the inventory are assumed to be the first goods removed from the inventory for sale.

• Objectives of financial statements – GAAP provides separate objectives for the business and non-business entities. IFRS provides the same set of objectives for business and non-business entities.
• Development costs – The development costs can be capitalized under IFRS, whereas they are considered as expenses under GAAP.
• Inventory reversal – Under IFRS, if an inventory is written down, the write-down can be reversed in future periods if specific criteria are met but in GAAP, once inventory has been written down, any reversal is prohibited.

Is GAAP better than IFRS?

While comparing IFRS vs. GAAP for choosing one as your certification course, you must remember that it all depends on your geographical location and the industry you are in. If you are looking to work in the US or working for US-based organizations, GAAP is going to be the best one for you. Otherwise, IFRS is perfect as it is widely accepted across the world and a greater percentage of the organizations globally are adopting the IFRS standard.