U.S. GAAP AND IFRS QUESTIONS
AND ANSWERS
What are the differences in the area of inventory accounting? - CORRECT ANSWER-
For inventory purposes, the average method and FIFO method are both allowed for
U.S. GAAP. Both methods are required under IFRS. However, LIFO, which is used
extensively in the United States, is not allowed under IFRS. This is a significant
difference between the two methods. The lower of cost or market rules differ between
U.S. GAAP and IFRS. Inventory can be written down under U.S. GAAP to market value,
but not revalued upward. Under IFRS, inventory can be written down, but also written
up (but only to cost).
What is the difference between U.S. GAAP and IFRS? - CORRECT ANSWER- One
is based more on specific rules (U.S. GAAP), and the other is based more on broad
principles (IFRS).
How tall would the authoritative accounting rules stand for IFRS and U.S. GAAP,
respectively? - CORRECT ANSWER- The accounting rules for IFRS are two inches
high.
U.S. GAAP has rules that are nine inches high, plus additional supplementary materials
from a variety of other sources as well.
Which set of rules allows companies more discretion on what information is placed on
the financial statements? - CORRECT ANSWER- Under IFRS, companies have
more discretion in what information is placed on their financial statements than under
U.S. GAAP, because IFRS is based on broad principles that allow for management to
disclose information more tailored to their needs. U.S. GAAP tends to be more specific
as to the required disclosure needed in a specific situation.
What are the required financial statements? - CORRECT ANSWER- The basic
required financial statements for both are the same: the income statement, balance
sheet, and statement of cash flows.
However, the financial statements look different quite different when contrasting U.S.
GAAP and IFRS.
What does the income statement look like? - CORRECT ANSWER- The income
statement under U.S. GAAP is either a single-step or multiple-step format. Under IFRS,
expenses are classified by nature or function. For example, by nature, wages would be
classified. By function, descriptions such as manufacturing would be reported. A great
deal of leeway is available under IFRS for financial statement issuers. The income
statement under both U.S. GAAP and IFRS classifies comprehensive income as part of
equity.
What does the balance sheet look like? - CORRECT ANSWER- On the balance
sheet under U.S. GAAP, we usually list current assets first, then go down the asset side
in the order of liquidity. Also, we use historical cost for purchases and the recording of
AND ANSWERS
What are the differences in the area of inventory accounting? - CORRECT ANSWER-
For inventory purposes, the average method and FIFO method are both allowed for
U.S. GAAP. Both methods are required under IFRS. However, LIFO, which is used
extensively in the United States, is not allowed under IFRS. This is a significant
difference between the two methods. The lower of cost or market rules differ between
U.S. GAAP and IFRS. Inventory can be written down under U.S. GAAP to market value,
but not revalued upward. Under IFRS, inventory can be written down, but also written
up (but only to cost).
What is the difference between U.S. GAAP and IFRS? - CORRECT ANSWER- One
is based more on specific rules (U.S. GAAP), and the other is based more on broad
principles (IFRS).
How tall would the authoritative accounting rules stand for IFRS and U.S. GAAP,
respectively? - CORRECT ANSWER- The accounting rules for IFRS are two inches
high.
U.S. GAAP has rules that are nine inches high, plus additional supplementary materials
from a variety of other sources as well.
Which set of rules allows companies more discretion on what information is placed on
the financial statements? - CORRECT ANSWER- Under IFRS, companies have
more discretion in what information is placed on their financial statements than under
U.S. GAAP, because IFRS is based on broad principles that allow for management to
disclose information more tailored to their needs. U.S. GAAP tends to be more specific
as to the required disclosure needed in a specific situation.
What are the required financial statements? - CORRECT ANSWER- The basic
required financial statements for both are the same: the income statement, balance
sheet, and statement of cash flows.
However, the financial statements look different quite different when contrasting U.S.
GAAP and IFRS.
What does the income statement look like? - CORRECT ANSWER- The income
statement under U.S. GAAP is either a single-step or multiple-step format. Under IFRS,
expenses are classified by nature or function. For example, by nature, wages would be
classified. By function, descriptions such as manufacturing would be reported. A great
deal of leeway is available under IFRS for financial statement issuers. The income
statement under both U.S. GAAP and IFRS classifies comprehensive income as part of
equity.
What does the balance sheet look like? - CORRECT ANSWER- On the balance
sheet under U.S. GAAP, we usually list current assets first, then go down the asset side
in the order of liquidity. Also, we use historical cost for purchases and the recording of
