US Accounting vs. International Accounting (2024)

FAQs

How does US accounting differ from international accounting? ›

Inflation and deflation

US accounting standards disregard the effect of deflation and inflation when it comes to account analysis. International standards differ, with financial reporting adjusted using a price-index to reflect the effects of inflation or deflation.

Which Is Better: IFRS or GAAP? This is a matter of perspective. IFRS is more principles-based, while GAAP is rules-based. A focus on principles may be more attractive to some as it captures the essence of a transaction more accurately.

Findings based on the price and return metrics, but not the cash flow metric, indicate IFRS-based accounting amounts are comparable to US GAAP-based accounting amounts for firms from common law legal origin countries.

GAAP tends to be more rules-based, while IFRS tends to be more principles-based. Under GAAP, companies may have industry-specific rules and guidelines to follow, while IFRS has principles that require judgment and interpretation to determine how they are to be applied in a given situation.

At the third and broadest level, international accounting can be viewed as the study of the existing accounting, auditing, and taxation standards, guidelines, and rules in each country as well as a comparison of those items across countries.

Some reasons for the U.S. not embracing the standards convergence are: U.S. firms are already familiar with the existing standards; the inability or low ability to culturally relate to other countries' accounting systems; and a lack of good understanding of the international principles.

The three golden rules of accounting are (1) debit all expenses and losses, credit all incomes and gains, (2) debit the receiver, credit the giver, and (3) debit what comes in, credit what goes out.

International Financial Reporting Standards (IFRS) are a set of accounting rules currently used by public companies in 168 jurisdictions. GAAP is a set of generally accepted accounting principles widely used in the U.S. for financial reporting by corporations and government entities.

Why is GAAP followed nationally and internationally by the accountants? ›

The purpose of GAAP is to ensure some basic level of consistency in accounting statement of all different organizations. It enables external users of the financial statements to easily decipher and understand the accounts of a company.

They both use accrual accounting for their financial statements, meaning balance sheets, which determine a company's assets and liabilities and income statements, the company's revenue and expenses. Not only that, but GAAP and IFRS both believe in financial statements' transparency towards investors.

The key differences between GAAP and IFRS include: GAAP is a framework based on legal authority while IFRS is based on a principles-based approach. GAAP is more detailed and prescriptive while IFRS is more high-level and flexible. GAAP requires more disclosures while IFRS requires fewer disclosures.

Balance Sheet

US GAAP lists assets in decreasing order of liquidity (i.e. current assets before non-current assets), whereas IFRS reports assets in increasing order of liquidity (i.e. non-current assets before current assets).

While also a private company, the IASB receives its funding through private donors and corporations. Additionally, the FASB board members mainly work and reside in the United States, while the IASB board members live and work in several nations around the world.

The key difference between IAS and IFRS is that IAS is the earlier version of the accounting standards, while IFRS is a more up-to-date and widely used version worldwide. IFRS provides more detailed requirements for financial reporting and covers a broader range of accounting issues than IAS.

Because accounting standards originated within countries as they sought to standardize commerce within their borders, international accounting does not exist per se but is instead a collection of those individual national methods. Each country follows its own set of generally accepted accounting standards.

There are two primary methods of accounting— cash method and accrual method. The alternative bookkeeping method is a modified accrual method, which is a combination of the two primary methods. Cash method—income is recorded when it is received, and expenses are recorded when they are paid.