Differences Between IFRS and GAAP
International Financial Reporting Standards (IFRS) is a reporting system based on using principles in operations. Such a system creates an additional burden because each decision requires a new interpretation, and therefore, principles are not unique (Becker et al., 2022). At the same time, generally accepted accounting principles (GAAP) integrate all the rules and have a strict order of distinction for each case and its categorization.
GAAP provides guidance to companies on industry-specific rules but prohibits individual interpretation. IFRS principles were created to unify fundamental aspects of accounting and rely more on individualism for decision-making. Giving latitude to companies on industry-specific rules is one of the essential differences between IFRS and GAAP.
Reasons the U.S. Has Not Adopted IFRS
One of the reasons the U.S. is abandoning IFRS is that it is an expensive process to transition to a new accounting system. Many industries must rewrite almost all critical provisions, jeopardizing their current financial stability and clarity (Becker et al., 2022). In the face of the transition, there is a chance of information loss, as control systems such as the Securities and Exchange Commission (SEC) may not provide a secure environment. In addition, fears about IFRS integration are not unfounded. The U.S. risks losing competitiveness, and thus, the value of investments will decrease.
IFRS vs. U.S. GAAP: Which Is the Better Reporting Standard?
The best standard should be recognized as GAAP, which allows all mechanisms to work thoroughly and comprehensively. The current U.S. accounting system has gaps compensated for by experience and understanding of the set of rules used. It is likely that some elements from IFRS can be usefully utilized in the current system, but excessive freedom and lack of certainty will get in the way (Becker et al., 2022). A stable approach cannot be achieved until there are enough IFRS-based cases, and this transition process would undermine the current state of accounting in the U.S. too much.
Reference
Becker, K., Daske, H., Pelger, C., & Zeff, S. A. (2022). IFRS adoption in the United States: An analysis of the role of the SEC’s chairs. Journal of Accounting and Public Policy, 42(3). Web.