U.S. GAAP versus IFRS: Contingent Assets, Contingent Liabilities and Employee Benefits

I. Introduction

This study analyzes the U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). It examines the usage and practicality of U.S. GAAP and IFRS i.e. application in representing the financial information by comparing both the systems. The basic understanding in terms of comparability in the framework of these two reporting systems is valid when comparing the firms with the same economic outputs. Similarly, firms with different economic outcomes might consider different reporting system as well. In the United States, public companies may not be allowed to adopt the IFRS in the near future, but it's the matter of fact that the cross border merger and acquisitions (M&A) and the non US stockholders' need certainly require the use of IFRS in representing the information (Barth et al., 2012). IASB and FASB are working together to form a unique procedure for reporting by working on the major significant differences and the need to address them. Since, there are many differences in both the accounting systems that are highlighted below.

Global Generally Accepted Accounting Principles

GAAP is the body of regulations which was established in United States by which companies should prepare their accounts. GAAP does not only include accounting standards they also have company laws of United States. It is a legal term in taxes acts of United Kingdom. Accounting standards are made by various sources. Financial reporting system was used to be settled by Accounting Standard Board. Then Accounting Standard Board was replaced by the Financial Reporting Council. It was banned in 1990 because of high amount of criticism on the work of this committee (CGAA 2002).

GAAP is a standard which guide companies and corporations in maintaining their accounting statements like assets and liabilities, revenue and expenses and many other financial statements. There are many accounting rules in GAAP which are used for various accounting transactions. GAAP is replaced by many countries these days. Countries prefer International Financial Reporting Standards instead of GAAP. There is difference between the GAAP applied in United States and GAAP applied in United Kingdom. Because of the difference in GAAP and international standards a user might take the information in wrong way (CGAA 2002).

The example of this can be taken as a user while looking at two companies might understand that one company is making more profit then another one. The fact is that the company is not making more profit. The profits are calculated in different ways due to which it looks like this. One of the reasons for moving towards international standards is that companies want avoid this kind of disparity (CGAA 2002).

International Financial Reporting Standards

These standards are made in a common language so that it can be understood and apply in the international boundaries. The reason behind the formation of such standards is that now day's companies are not limited to their home countries only. Companies are working in various countries. So by applying these standards they are able to make their ...