The Difference between GAAP and IFRS

ZACH DE GREGORIO, CPA

First you need to understand what these things are. GAAP and IFRS are accounting standards. GAAP stands for Generally Accepted Accounting Principles which is the accounting framework used in the United States. IFRS stands for International Financial Reporting Standards which is the accounting framework used in the rest of the world.
What is an accounting standard? They are basically a set of guidelines you need to follow for accounting in your business. It is not laws, but it is really self-regulation where accountants have gotten together and agreed on the methods to use. When we talk about GAAP and IFRS, we are describing two different accounting standards.
In general, GAAP and IFRS are very similar already. The fundamentals of accounting are the same anywhere in the world. You still have the same financial statements and basic processes. However, there are still some significant differences.
The biggest difference between GAAP and IFRS is that GAAP is rules based, whereas IFRS is principles based. GAAP actually writes out all these different rules that US companies are required to follow, which does not leave much room for interpretation. IFRS focuses on the principles. This means that GAAP is much longer and more detailed than IFRS. The reason that GAAP is so detailed, is there have been some pretty big accounting scandals in the US. Every time a business has a major accounting scandal, more rules get added to the list, to make sure there are no misunderstandings in the future.
One of the biggest differences that has not yet been resolved is LIFO. LIFO means Last-In First-Out which is a method of valuing your inventory. US companies are allowed to use LIFO. International companies are not. A lot of US companies use LIFO, because most of the time it reduces your reported profit, which reduces your taxes. We are talking about a lot of money. No one knows for sure what the estimated tax savings is, but it is estimated at over $100 Billion in the US over 10 years. To give you an idea of how complicated this is, for treatment of LIFO to change, the US would have to change that part of the IRS tax code, which would require the US legislature to pass a law increasing corporate taxes by $100 Billion. This presents a real challenge. LIFO is just one example, but there are many more differences between GAAP and IFRS.

Neither Zach De Gregorio or Wolves and Finance Inc. shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.

[krishnnakumarr]

Finally, a video which is more clear on the differences. Thank you sir 👍

[YuYu-kpee]

So fantasitic the video is. As a beginner of accounting and non-native English speaker, I can clearly get a clear and logical understanding. Thank you very much.

[SooAwsome]

This was so helpful. Your examples and lively energy kept me engaged. Thank you!

[shriprakashmishra]

After seeing a very clear difference between GAAP & IFRS, I can not stop myself to suscribe your channel because I want that type of videos more....

[mohibqureshi]

Now this is what i call "lecture" everyone else....they go all around the universe and then come to the topic....BTW... Thank you sir.

[chethan]

Thank you very much, it's really an informative, now I understand why US is not adopting IFRS standards..

[malikastar]

Now, I can understand why US stick to its own method of accounting, thank you for explaining the difference between ifrs and gaap

[ip]

I can't believe that, as an adult/mature student, I am still sat here in August 2020, having to Google and YouTube even the most basic terminology and still struggling to understand it and already extremely exhausted. The tutors not just at university but maths tutors at secondary schools should have taught this important information day from day 1. I chose the discipline of business however once again I missed all my exams and assessments and resits due to health issues, the lockdown and other extreme struggles stifling my studies. I am sat here staring at a mostly blank table of IAS/ IFRS SSAP/FRS OLD AND NEW TERMINOLOGY and trying to find a reliable source that tells me this in clear english. This is only a starter activiity never mind the assignments and exams. If anyone can understand my concerns and believes they can help, please kindly advise, for UK based study. Thanks in advance.

[jasontsui]

This is a very good summary of the diff. btw US GAAP and IFRS and also why the differences won't be eliminated in the near future due to some practical reasons such as US gov. control power of the accounting standards and also tax issue even though some new standards issued by US GAAP and IFRS recently such as Revenue from contracts with customers are basically the same.

[blessinginedu]

Thanks for this. You just saved me from a whole lot of headaches

[billyferguson]

Thank you sir for the info!! I and I’m SURE MANY OTHERS are MOST DEFINITELY APPRECIATE you taking the time to share all the info you do!! I’m the same way if I can help someone even if they end up having or making more then me IDC!! I feel great in my heart knowing how I helped changed someone life!!! AGAIN THANK YOU SIR AND KEEP UP THE HARD WORK!!! 👍

[ddot]

I like that you hit on the real reasons behind wanting IFRS to be adopted in the US, money. It's allllways about the money. Good video, thanks.

[rohitgoenka]

Thank you so much Sir for letting us know about this wonderful topic. I really appreciate your efforts to make such a great informative video and share with us. 👍👍

[arunjella]

Fantastic brief explaination about the differences between GAAP AND IFRS.

[tianzhizeng]

I know this is not much of a technicals channel, but if you could do a video on reconciling GAAP and non-GAAP accounting data from an equity research perspective I think it's gonna help a lot of folks out there.

[muhammadalipajoumand]

This is last days of 2021. I loved the info bro keep the good work up

[lej]

i speak french but i understand english a little bit and i can tell you that you’re very smart, very good video

[Tizonwar]

this is a great insight to other side of the story for the rest of world, I am learning IFRS.

[lisarod]

I know this is off topic but do you know what is supposed to happen in the official rules of monopoly when the bank runs out of money?

A: You draft your own 😉

Great video. Subscribed.

[prakritime]

This guy is Great in explaining. He could be a good professor.