U.S GAAP are financial governing directives that comprise of rules and legislatives for businesses and financial corporations that release statements to members of the public in the U.S. Companies trading stocks to the public in the United States follow GAAP guidelines. International financial reporting standards (IFRS) on the other hand, are a set of standard rules put in place by the International Accounting Standard Board to harmonize financial statements across the globe (Sedki et al., 2014). The two are financial bodies and both major in ensuring transparency of financial statements. However, they have significant differences as well.
IFRS for instance is not as strict as the U.S GAAP. For IFRS, the interest and dividend received can be categorized under either operating activities or investment activities, whereas in U.S GAAP they can only be categorized under operating activities. Similarly, interest and dividend paid can be classified as either operating or financing activities under IFRS while in U.S GAAP interest paid is considered as part of the operating activity and dividend paid is part of the financial activities (Sedki et al., 2014). Under the U.S GAAP, taxes levied count as operating activities but with the IFRS, part of the tax expense may be assigned to investing activities where a direct allocation is possible. Another major difference lies with banking overdrafts, where they count as part of the overall cash equivalents in IFRS, but not in U.S. GAAP they are only active under financial activities.
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In respect to financial statements and cash flow reports, similarities exist between the two bodies. For instance, both require a cash flow statement to be submitted for all the investing, financial and operation activities carried out(The period broken). Moreover, direct and indirect methods of cash flows presentations are applicable in both on their operating activities.
Reference
Sedki, S., Smith, A., & Strickland, A. (2014). Differences and Similarities Between IFRS and GAAP on Inventory, Revenue Recognition and Consolidated Financial Statements. Journal of Accounting and Finance vol . 14(2). Retrieved from: http://t.www.na-businesspress.com/JAF/SedkiSS_Web14_2_.pdf
