GAAP, or Generally Accepted Accounting Principles, have long defined the standards for accounting and related practices in the US. GAAP ensures that companies can produce documents that auditors can verify according to standardized accounting practices.
GAAP is also important because it provides for consistency across industries and companies. A company using GAAP can have its financials compared with similar GAAP-compliant companies.
IFRS, or International Financial Reporting Standards, is a standard that has been implemented in over 120 European and Asian countries. On August 25, 2008, the US Securities and Exchange Commission (SEC) published a proposed schedule for IFRS to supplant GAAP. The deadline for full conversion/compliance by US publicly traded corporations is 2016. Canada is expected to be completely IFRS-compliant by 2011.
The main effect of IFRS relates to a minimum standard for companies to recognize, measure, and disclose items in financial statements.
IFRS financial statements are significantly more complex than GAAP financial statements. Some (particularly those who earn their livelihood based on GAAP expertise) argue that this complexity threatens to undermine the utility of IFRS financial statements. Indeed, there is a real danger that the preparation of IFRS financial reports will become a technical compliance exercise rather than a mechanism for communicating actual organizational performance (to say nothing of financial position).
Because the transition to IFRS is so substantial, I decided to list my top 10 most important accounting-related business issues that are impacted by the transition from GAAP to IFRS. These are some of the ways in which IFRS will impact your ERP system.
Note that I do not mention SOX-related issues, since SOX is a topic that deserves a blog post in its own right (stay tuned for that…)
Now it’s your turn!
Are you or will you be prepared for the transition to IFRS?
What do you think? Let me know by leaving a comment below!
I write a blog on IFRS conversion in Canada and have referenced a number of issues on the IT considerations including XBRL. It looks like Caseware in Canada is coming out with a software solution and I am keeping an eye out for others.
Microsoft has also put out a paper in connection with the EU implementation in 2005.
It would be helpful if you could review these from an IT perspective.
BTW LIFO is not permitted in Canada we do not have that problem. Big problem for US since to be accepted for tax it has to be used for accounting.
One of the paricular issues is to keep 2 sets of books during the year before conversion so we can do the comparative information under IFRS 1
The IFRS Exorcist
Thank you for the additional information and the clarification that lifo was not permitted in Canada.
I will be exploring your recommendations in the coming weeks and would look forward to discussing some relevant topics with you.
IS it so simple conversion or still need digging to find the complex transactions to be converted.
If, its so easy play why it should take such along time i.e. 2016 to get it converted? May be still surprising. By the way will there be any impact on accumulated profir or retained earning.
Hi Mu Naz Islam
The American Income Tax System is very complicated. They have rules to cover every industry and even, some rules make exceptions for geography, with special deductions for remote hardship locations. By the way, the same is rules are true for Canada.
The Chart of accounts for IFRS is somewhat different from American GAAP and Canadian GAAP. Differences are with what is expensed, deferred or accrued, or earnings that are retained. Certain accounting rules are not permitted in GAAP, and are permitted with IFRS. The contrary is also true.
The time delay is what the Securities and Exchange Commission (SEC) stated would be the ultimate deadline. Many companies are expected to be IFRS converted before 2011.
To answer your questions, it is not a simple conversion. The previous two paragraphs explain why it takes time. Do realize that many companies are multi-national, and IFRS requires subsidiaries charts and processing to conform to the parent company. Some corporations hold companies that they themselves are holders of companies. All these subordinates must be converted beforehand. That conversion may take two years or more per subordinate level.
Intéressant. Je pense notamment au fait que la charte de compte des divisions doit être intégré à la charte de la maison mère. En mode multidimensionnel, cela est excellent pour nous.
Autre point que je ne comprends pas totalement, les revenus courus peuvent être comptabilités seulement si un paiement est reçu. Mais un paiement est reçu, il me semble que ce n’est plus couru!?
Difference between GAAP and IFRS
Merci d’avoir fourni vos commentaires dans votre langue maternelle. J’essaie de vous réponds également.
Notamment, la règle de IFRS exige que les filiales seront converti avant la maison mère. Quand vous dites “Excellent pour nous”, j’aimerais avoir votre explication.
Dans le monde de vents, une commission pourra être fournie avec paiement de 1er facture, ou avec la réception de la commande. Pour la deuxième cas, certains compagnies américains ont pris a décision de comptabilisé le revenu a partir de date de l’heure de la signature de vente. Je le vois que cette échéance éliminera les problèmes des actions de déclarations des revenues faux. (Ventes potentiels dans la dernière trimestre et révocation dans 1er de l’année prochain).
Merci pour vos commentaires.