Currently, there are two major accounting systems that most organizations apply for financial analysis. Notably, the two systems use acronyms that stand for United States Generally Accepted Accounting Principles (US GAAP) and the International Generally Accepted Accounting Principles (IGAAP). Just as the initials state, US GAAP consists of the key principles used in accounting within the United States, while IGAAP contains the guidelines and principles that other countries use in accounting entries and making calculations (Gupta, 2011). Despite the existence of a number of differences in the two accounting systems of intangible assets, there are a several similarities that this paper will discuss. Thus, this paper aims at providing a brief description of major similarities and differences between US GAAP and IGAAP.
Similarities
When coming up with entries for intangible assets, it is of great significance to note the major correspondences between IGAAP and US GAAP. In both systems, the accounting guidelines use same language, entry procedures, reporting periods, as well as consistency. Most accounting vocabularies that are used in US GAAP and IGAAP have various factors in common. For instance, when preparing a balance sheet, intangible assets are used in both the accounting systems. In addition, entry procedures are similar for both in preparation of entry books such as the statement of financial position, income statement, cash flow statement among others (Kakani, 2012).
Most firms view intangible assets as business intelligent possessions that include elements such as copyrights, patents, franchise licenses, goodwill, trade names, government licenses and trademarks. In fact, in both accounting systems, intangible assets are defined as those that are neither physical nor monetary. However, they are often categorized as long-term assets that have abiding importance to the firm. It is evident that both accounting systems present intangible assets on the balance sheet as value holding properties (Young, 2013).
Moreover, both IGAAP and US GAAP isolate various costs that are associated with any kind of research and development into two key perspectives. The costs are mainly divided into direct and indirect ones. Furthermore, the isolation helps in ensuring that all the calculations appear in clearer and better columns. Obviously, using US GAAP and IGAAP has a number of similarities that have to be followed by all accountants.
Differences
US GAAP and IGAAP have a number of differences that are mainly attributed to the locations where the systems are used when handling intangible assets. IGAAP has a number of requirements that permit reversal of falling losses that come up as a result of change in global economic conditions or expected losses on an asset. On the other hand, US GAAP states that impairment losses can never be reversed in the case of assets that are to be held or used.
Additionally, IGAAP authorizes capitalization of intangible assets that have been internally integrated. Such cases involve an existence of the probability of future profits where the amount is measurable (Walton, 2009). By evaluating the major differences between US GAAP and IGAAP, various companies have come up with numerous ways that can help in computing the actual number of intangible assets.
Conclusion
In a nutshell, US GAAP and IGAAP share several similarities since they both handle accounting information. On the other hand, there are a number of differences between the systems. It is highly essential for the users to ensure they follow the accounting guidelines in order to avoid inconsistencies in making accounting entries.
References
Gupta, A. (2011). Financial accounting for management: An analytical perspective. Mumbai: Pearson Education India.
Kakani, R. (2012). Financial accounting for management, New York: Tata McGraw-Hill Education.
Walton, P. (2009). An executive’s guide for moving from us GAAP to IFRS. London: Business Expert Press.
Young, E. (2013). International GAAP 2013: Generally accepted accounting principles under international financial reporting standards, New York: John Wiley & Sons Publishers.