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When we compare the current most widely used reporting standard US GAAP with IFRS, some things stand out.
The biggest difference between U.S. GAAP and IFRS is that IFRS provides much less overall detail. Its guidance regarding revenue recognition, for example, is significantly less extensive than U.S. GAAP. IFRS also contains relatively little industry-specific instructions. In IFRS a hundred percent compliance is mandatory, and unlike the Indian and other reporting standards, no “subject to” can be resorted to.
Because of longstanding convergence projects between the IASB and the FASB, the extent of the specific differences between IFRS and GAAP has been shrinking. Yet significant differences do remain, most any one of which can result in significantly different reported results, depending on a company’s industry and individual facts and circumstances. For example:
- IFRS does not permit Last In, First Out (LIFO).
- IFRS uses a single-step method for impairment write-downs rather than the two-step method used in U.S. GAAP, making write-downs more likely.
IFRS does not permit debt for which a covenant violation has occurred to be classified as non-current unless a lender waiver is obtained before the balance sheet date.
Conversion to IFRS is much more than an accounting exercise. It will affect many aspects of a U.S. company’s operations, from information technology systems and tax reporting requirements, to internal reporting and key performance metrics and the tracking of stock-based compensation. As we had articulated earlier, the current market valuation is mandatory in IFRS.