International accounting is the branch of accounting which utilizes accounting principles and practices prevalent throughout the world in dealing with particular problems global operations. The US Generally Accepted Accounting Principles (GAAP) are common accounting principles focused on practices of U.S companies used to organize, present, and report financial statements. International Financial Reporting Standards (IFRS) are standards issued to provide a common business language across international boundaries.
GAAP and IFRS are alike in many ways. Both use an income statement, balance sheet, and statement of cash flows. They both deal with cash and cash equivalents in similar ways. Another similarity is that financial statements are prepared on an accrued basis, meaning that revenue is recognized when realized. The two also have some differences. While GAAP is rule-based, IFRS is principle based. This means that IFRS allows for a different interpretation of the same transaction while GAAP has no room for error but follows a set of rules. Also, in inventory valuation, GAAP accepts the LIFO (Last in First Out) assumption while IFRS only uses FIFO (First in First Out) and average cost. Another difference is in the use of write-ups and write-downs. Both are used in IFRS while GAAP only allows write-downs. This means that for IFRS, their book value increases according to the current market situation, which is not the same case for GAAP.
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The difference that I found most interesting was the rule-based and principle-based accounting. The principle-based philosophy used by IFRS allows for flexibility in accounting principles and disclosure requirements. For example, in preparing income statements, GAAP strictly requires the use of a single-step or multi-step approach, but IFRS does not mention any approach. The goal of using IFRS principles is to arrive at a reasonable valuation using the many ways that seem fit. If there were a convergence between the two methods, I would choose IFRS mainly due to its flexibility in handling different situations and because it can capture the economics of a transaction better than GAAP.
