US GAAP vs IFRS
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- čas přidán 26. 06. 2024
- US GAAP versus IFRS. US GAAP: United States Generally Accepted Accounting Principles. IFRS: International Financial Reporting Standards. US GAAP and IFRS are the two main #accounting standards in the world, for use by publicly listed companies. US GAAP is developed by the FASB, the US-based Financial Accounting Standards Board headquartered in Norwalk, Connecticut. IFRS is developed by the IASB, the International Accounting Standards Board headquartered in London, United Kingdom.
⏱️TIMESTAMPS⏱️
00:00 US GAAP and IFRS acronyms
00:38 Which countries use US GAAP or IFRS
02:17 Importance of understanding US GAAP and IFRS
05:06 Comparing US GAAP and IFRS: example
06:40 Foreign issuers using IFRS
08:20 Differences between US GAAP and IFRS
12:38 Developments in US GAAP and IFRS
13:34 US GAAP and IFRS convergence
14:42 LIFO vs FIFO and other differences
15:41 Will the US adopt IFRS?
Let’s zoom out to the big picture on US GAAP versus IFRS. US GAAP is mostly rules-based, while IFRS is mostly principles-based. What does rules-based versus principles-based mean? Here’s a metaphor that viewers with children, or those that grew up with a brother or sister, might relate to: the two ways to run a family. Some parents use a rules-based system: they tell their kids which behaviors are allowed and what is prohibited: you can’t kick or punch your brother or sister, but you may give him or her a hug. Other parents may use a principle-based system: “in this family, we are nice and friendly to each other”. Is rules-based better than principles-based, or is principles-based better than rules-based? I don’t think one is better than the other, each has advantages and disadvantages. With rules, you try to provide clarity and be specific. The more specific the guidance, the more consistent the application, right? Or not quite? Unfortunately, in the case of families, by making a list of rules you might also encourage children to try things behind your back as a parent, kids might test the “limits” of the rules, and your list of rules is probably never ever going to be complete to describe each and every possible interaction between siblings. An equivalent of this in US GAAP accounting standards is the use of “bright lines”: when the FASB specifies a percentage as a minimum or maximum for applying a certain rule, companies might adapt their behavior to just meet the minimum requirements (complying with the “letter” of the standard, but not necessarily with the “spirit” of the accounting standard). With principles, you leave a lot of room for interpretation; different people might each have their own subjective interpretation of the principle. Opponents of principle-based structures would say that a lack of detailed rules might lead to more abuse, and in a business context to different interpretation for similar transactions. Neither system will be perfect, and it is not easy to find an optimal mix between rules and principles that works best.
A rules-based standard like US GAAP is definitely more sizable than a principles-based standard like IFRS. Estimates of the size of US GAAP versus IFRS vary from 7200 pages of US GAAP (when printed) versus 1300 for IFRS, to 25,000 pages of US GAAP to 2000 pages for IFRS. Whether it’s a 6-to-1 ratio or 12-to-1 ratio, rules-based is more extensive. This remains one of the criticisms of US GAAP by practitioners: a standards overload with too much detail and a high level of complexity.
It’s important to understand that both US GAAP and IFRS are changing over time. New industries emerge, new types of transactions occur, and the thinking about how certain economic transactions need to be treated accounting-wise changes. Some years, big impact changes in the standards occur. In other years, the number of changes might be large, but the impact fairly low. And sometimes things are fairly quiet in the area of standard setting. So even if you compare numbers for one and the same company over a large number of years, you might be comparing “various types of apples”. An interesting question is whether US GAAP and IFRS will converge (grow more close), or diverge (grow further apart). The FASB and IASB have been working together over the years to try to develop common standards in various areas.
Philip de Vroe (The Finance Storyteller) aims to make strategy, #finance and leadership enjoyable and easier to understand. Learn the business and accounting vocabulary to join the conversation with your CEO at your company. Understand how financial statements work in order to make better #investing decisions. Philip delivers #financetraining in various formats: CZcams videos, classroom sessions, webinars, and business simulations. Connect with me through Linked In!
These videos shared by this channel are profound and friendly to watch at the same time. Thanks for sharing.
Thank you very much for the kind words!!! I love the way you phrased it. Many thanks!
Enjoyed the video? Then subscribe to the channel now, and watch the related video on GAAP vs non-GAAP next: czcams.com/video/ewzlgnGtfmg/video.html or dive deeper into the new revenue recognition standard ASC 606 / IFRS 15: czcams.com/video/816Q6pOaGv4/video.html
Wow this is a very good explanation of the differences! It makes me understand the differences from several perspectives.
Glad it was helpful! It was fascinating to do the research, and important on an ongoing basis to keep up-to-date on the new developments in both "systems".
Excelent presentation, very clear and straight to the point. I work as SAP Analytics and also I operate stock markets.
That understaning is relevant for both audiences. Thanks!
Absolutely agree! Thank you for watching and commenting. Please spread the word to clients and colleagues! :-)
Thank you for great explanation + animation! Really helpful
Great to hear that, Mirah! You're welcome. 🙂
great content now I talk about it in my interview
Wishing you lots of success in the interview!!! Great topic to have a conversation about.
Great topic and explanation
Thank you! :-)
super valuable, clear and straight forward. Thank you!!
Wow. Happy to hear you liked it. Thank you for watching and commenting! From your last name, I suppose you have Dutch ancestors?
@@TheFinanceStoryteller my husband does :-)
@@LadySema Wonderful! Greetings from the Netherlands to you and your husband!
Very helpful video. Thanks man 👍🏼
Glad it was helpful, Jai! Thank you for watching and commenting.
You are doing great work :) thank you
So nice of you! Thank you too, for watching and commenting!
Great Video! thank you😎
You're welcome, Kervin! Happy to hear that. :-)
Wonderful job for having explained this topic more clearly, thanks...
You're very welcome! 😎 I think it is a fascinating topic, and I enjoyed researching and summarizing it.
The metric system analogy is what I too thought about at the beginning of the video : )
Great minds think alike, Ashwin! ;-)
@@TheFinanceStoryteller I agree Sir ; -) Great content, as always : )
@@ashwinudapikar3290 Thank you, my friend!!!!
I was just about to buy a book on IFRS because I’m trying to get familiar with the language used in financial reports but I’m glad I didn’t because I think it wouldn’t be wise to get familiar with GAAP first because of where i live and most companies I’m interested in are US. Thank you for this video. the way you break down and explain is awesome !
Thank you very much for the kind words, Jacob!!! I agree with your approach. Learn from reviewing real-world corporate financial reports, and then investigate some of the terminology you come across along the way (goodwill, intangible assets, deferred revenue, retained earnings, etc.). I have videos on most of the terms used in balance sheets, income statements and cash flow statements. Take a look at some of my financial statement case studies, it should help you on your way: czcams.com/video/PI9X5Ybek_E/video.html Oh, and beware of the difference between GAAP and non-GAAP as well: czcams.com/video/ewzlgnGtfmg/video.html
“No no no no no” apples to apples :D this is a must watch! And not only for accountants
Thank you! Glad you enjoyed it.
Thank you so much for this content
My pleasure!
Great explanation, thanks for saving me from reading that 500 pages KPMG report :)
You're welcome! 😎
Very useful, keep going 👏🏼
Thank you, Abdullah! Will do!!!
Thank you for this video 👍
My pleasure, Floriane! It's a topic that's very inviting for further study, hope you enjoyed my summary of what I think are the "highlights".
thankyou for this video
You're welcome, Shruti!
Clear and easy to follow video!
I'm using some of the points made for my assignment and was wondering if you remember from what source you found the estimates for the number of pages if printed?
Thanks! Great to hear that, and happy to help. In researching this topic, I actually downloaded each of those publications. Just type in "US GAAP vs IFRS" and the name of any of the individual accounting firms mentioned, and you will find a PDF version of the document. That's what I used for the page count.
Hello, many thanks for the video and for the graphlic presentation. Kinds and greets from Germany!
Herzlichen Dank, Soreb! Nice to hear you enjoyed it.
@@TheFinanceStoryteller Pleasure is mine :-) Are you too german ? Greets!
@@1La2La3La4La No, I am Dutch (i.e. from the Netherlands), but often read books and magazines in German, and go there on holiday or business trips.
Very good explanations and summary, thanks
Happy to hear that! Thank you for watching and commenting!!!
Great videos. More on Inventory valuing please.
Thank you, Erick! Here are some links related to inventory.
Inventory turnover czcams.com/video/uhJV5fbVNYE/video.html
Working capital explained czcams.com/video/XvHAlui-Bno/video.html
Asset impairment czcams.com/video/lWMDdtHF4ZU/video.html
FIFO LIFO czcams.com/video/VickgxlajOM/video.html
Enjoy!
Amazing video...
Thank you! It was eye-opening to do the research for it! ;-) In other words: we both learn. :-)
Thanks
Very Nice and clear 👌🏻
Thanks a lot 😊
Amazing video ever I saw in CZcams on the comparison of US GAAP and IFRS. Thanks Sir.. I just want your help to choose from them which one should I keep as a study?
Thank you for the compliment! :-) I would advise to be "financially bilingual": have at least a working knowledge of both. In terms of choosing one of the two to specialize in: which one would be the most relevant for your career and the location where you work? I have mostly worked for multinational companies with American roots, so naturally got exposed most to US GAAP. Definitely study the new revenue recognition and leasing standards, they are "hot topics" now.
Continue......
I was wondering what examples of the differences between ifrs and gap is for the new leasing standard as well as the revenue recognition
The best way to find out the latest examples in those areas is to review the documents that big accounting firms like KPMG and PWC publish on their website. Very informative, though sometimes very technical. If you type "IFRS compared to US GAAP" into a search engine, those should pop up. Make sure to check a recent version of the document, as the subject matter is ever evolving.
Sir can u explain about FERC accounting and how it is different from GAAP
Hello Shiv! Thanks for the request/suggestion, but I have no expertise in the area of Federal Energy Regulatory Commission (FERC) accounting.
Wow better comprehension
Thank you, Meron! In my view, it is essential to understand the main differences (conceptual as well as practical) if you want to understand business results in an international context. To add to that, I specifically researched the topic of impairments in US GAAP vs IFRS last year when some (but not all) of the oil companies recorded big one-time impairments: czcams.com/video/XkBB32Bnobc/video.html
Hello, congratulation for the terrific quality of your videos. Very precise and useful. Can you advice me about one particoular book that you think is a must-read for people that want to understand in a better way accounting? In september I'm gonna start to work as Auditor and I have time to develope better knowledge of the subject.
Hello! Thank you very much for the kind words. I would not suggest just one single book, but multiple sources about some of the high profile accounting frauds: the movie "Enron: the smartest guys in the room" and subsequently any other documentation you can find about it, book "Exposure: Inside the Olympus Scandal: How I Went from CEO to Whistleblower" by Michael Woodford, Wirecard case (there's a movie I want to watch about it on Neflix), Worldcom, Parmalat. If you know how these frauds were done, and how they lasted for as long as they did, and how they were uncovered (forensic accounting) you will know what to look for as an auditor. Hope this helps! Let me know if you enjoyed them, once you get through them.
@@TheFinanceStoryteller Thank you so much, I will definitely watch them . And a book or a course to develop more technical knowledge? Your video are a fantastic starting point but I want to really improve my skills.
I don't really have a recommendation on a specific book or a specific course. Watch lots of videos, and read articles on current "hot topics" in finance and accounting. My suggestion is to build expertise in those areas that others might struggle with, and build your brand by acquiring deep domain knowledge. Here are a few suggestions on topics:
Consolidated financial statements czcams.com/video/DTFD912ZJQg/video.html&pp=gAQBiAQB
Asset impairment czcams.com/video/lWMDdtHF4ZU/video.html&pp=gAQBiAQB
Deferred tax czcams.com/video/MvXAljQD4II/video.html&pp=gAQBiAQB
GAAP vs non-GAAP czcams.com/video/ewzlgnGtfmg/video.html&pp=gAQBiAQB
Deferred revenue czcams.com/video/SNguYyKrqL4/video.html&pp=gAQBiAQB
ok can we do is gaap and ifrs , and after getting certificate of us gaap can i get job. ? and where should we do us gaap or ifrs. i do account executive job
Most of the accounting concepts are universal, so you would learn them when taking an accounting degree in any country. My advice would be to contact the official organization in your country that is in charge of the accounting degrees (education + keeping people up to date). It probably has a name like Institute of Chartered Accountants, or a variation thereof. If you plan to work specifically for a company that has HQ and stock market listing in the US, then knowledge of US GAAP is very important.
Hello i started reading books about accounting my study najot since i am not working for now is like feedback and getting a new knowledge but i don't know i shoild read according to gaap or ifrs and tell me a recommendation about what books i should read not mater how they big.
Sorry is long command or request please any one reply
Hello Mhd! I would suggest to review as many real life examples as you can from annual reports. Here are some suggestions from my list of finance case studies: czcams.com/video/PI9X5Ybek_E/video.html See if you can replicate my analysis with the latest numbers from the same companies, or with the numbers from other companies you are interested in!
I will check out for sure i am interested more in accounting analysis than taxation and other subjects
Hi, can someone tell me where I could find the Basis for conclusion on IFRS/IAS? Been searching all day long. Thank youuuu. It will be a huge help.
Hi Mikaela! A "Basis for Conclusions" is a document that accompanies a specific IFRS standard. For example, if you go to the official IFRS website (IFRS dot ORG), you will find a Basis for Conclusions which explains the Board's rationale for the amendments to IFRS 17 proposed in the Exposure Draft in response to concerns and challenges identified by entities implementing IFRS 17.
@@TheFinanceStoryteller Thank you sir. I have mistaken the basis for conclusion to the standard itself. I have to redo my work.
Hi Mikaela! Don't be too harsh on yourself... this area is very complicated. And as painter René Magritte said "Ceci n'est pas une pipe"! ;-)
@@TheFinanceStoryteller Although some of the standards I was looking for wasn't there but I found some so it's still a huge help sir.
It's better to do both the certifications, isn't it?
I would suggest to go very deep in one of the two, and build strong expertise, while being aware of the differences with the other standard. Many accounting firms have published guides on the main differences, with various level of "technical" discussion.
this guy need to get a new mic and maybe some sound treatment of the room, great video by the way.
Agree! Have been working with a new and much better setup since earlier this year, check out my video on consolidated financial statements to hear the difference: czcams.com/video/DTFD912ZJQg/video.html
I study accounting in Peru. We use IFRS. but I want to learn US GAAP and his differences between the internal revenue code. I have a high knowledge about (NICS and NIIFS from IFRS) I’m in the last year of my studies as an accountant. If someone can give me a guide on how to learn US GAAP, I can answer questions about NICS and NIIFs.
For me, the Deloitte, PWC and KPMG guides were very helpful on this.
IFRS vs us gaap which is best for India???
Indian Accounting Standards are based on and substantially converged with IFRS Standards.
@@TheFinanceStoryteller sir, us company In India so that company use IFRS or us gaap ?
@@JayPatel-ts6dt Hello Jay! For a company in India that has a US parent, the reporting for corporate purposes is on US GAAP basis. That same company will have to file statutory and tax books to the Indian government based on the applicable Indian rules.
USA on GAAP: Don't you understand? it's *Freedom*
Ah
please check your audio recording, your voice is cracking really bad and we cannot understand what you are talking.
Hello Humberto! I have improved the setup since then.... in the meantime, for the older videos, please switch on the subtitles.
"Chinese accounting standards"
Lmao