https://www.investopedia.
com/ask/answers/041715/how-accounting-united-states-different-
international-accounting.asp
How does US accounting differ from
international accounting?
FACEBOOK
TWITTER
LINKEDIN
BY INVESTOPEDIA
Updated Nov 19, 2018
Despite major efforts by the Financial Accounting Standards Board, or
FASB, and the International Accounting Standards Board, or IASB,
significant differences remain between accounting practices in the
United States and the rest of the world. For example, companies in the
United States are allowed to use last in, first out, or LIFO, as an
inventory-costing method, which is a practice banned in most other
countries.
International practices are compiled in the International Financial
Reporting Standards, or IFRS, as set forth by the IASB. In the United
States, the FASB releases statements of financial accounting that, when
combined, form the generally accepted accounting principles, or GAAP.
According to the IFRS website, the greatest difference between the
IFRS and GAAP is "that IFRS provides much less overall detail." Other
significant differences include how comparative financial information is
presented, how the balance sheet and income statements are laid out
and how debts are treated.
Inventory Accounting Differences
GAAP allows LIFO carrying cost of inventory accounting, while the IFRS
explicitly prohibits any company from using LIFO. Instead, international
standards dictate that the same cost formula must be applied to all
inventories of similar nature.
Under GAAP, inventory is carried at the lower of cost or market, with the
market being defined as current replacement cost, with some
exceptions. Inventory under IFRS is carried at the lower of cost or net
realizable value, which is the estimated selling price minus costs of
completion and other costs necessary to make a sale.
Other inventory differences include how markdowns are allowed under
the retail inventory method or RIM, and how inventory write-downs are
reversed.
Long-Lived Assets
GAAP does not allow for assets to be revalued; IFRS allows for some
revaluation based on fair value, as long as it is completed regularly. The
depreciation of long-lived assets is very uncommon, though technically
allowable, under GAAP; it is required under IFRS if the asset's
components have "differing patterns of benefit."
Long-lived investment assets are separately defined by the IASB and
are normally accounted for on a historical cost basis. In the United
States, the FASB does not have a separate definition for property used
as an investment only. Property is only held for use or held for sale.
Impairment losses for long-lived assets under GAAP are calculated as
the amount of the asset exceeding fair value. Under IFRS, such assets
are calculated as the amount an asset exceeds "recoverable amount,"
or the higher figure between fair value less costs to sell or value in use.
Required Documents for Financial Accounts
Companies that report under IFRS are required to compile and publish
a balance sheet, income statement, changes in equity document, cash
flow statement and all associated footnotes. The FASB requires all of
these as well and adds in statements about comprehensive income.
Rules vs. Principles
GAAP is considered to be rules-based, meaning rules are made for
specific cases and do not necessarily represent a larger principle. IFRS
is principles-based and, in that way, more consistent. This is one reason
the published version of the IFRS is less than 20% the size of the
published volumes of GAAP.
