When an asset experiences a reduction in value due to market or technological factors-which in turn, causes it to fall below its current value in a company’s account-it’s classified as a loss on impairment. To summarize, here’s a detailed breakdown of how the two standards differ in their treatment of interest and dividends. Dividends paid can be put in either the operating or financing section, and dividends received in the operating or investing section. When following IFRS standards, companies have a choice of how they categorize dividends. GAAP specifies that dividends paid be accounted for in the financing section, and dividends received in the operating section. Interest paid can be placed in either the operating or financing section of the cash flow statement, and interest received in the operating or investing sections. Under IFRS, a firm can choose its own policy for classifying interest based on what it considers to be appropriate. GAAP prescribes that interest paid and interest received should be classified as operating activities, while international standards are a bit more flexible. This is most acutely seen in how interest and dividends are classified. The Cash Flow StatementĪ company’s cash flow statement is also prepared differently under GAAP and IFRS. Under IFRS, the order is reversed (least liquid to most liquid): non-current assets, current assets, owners’ equity, non-current liabilities, and current liabilities. The items are arranged in descending order (most liquid to least liquid): current assets, non-current assets, current liabilities, non-current liabilities, and owners’ equity. GAAP calls for accounts to be listed in the order of liquidity-or how quickly and easily they can be converted to cash. The two standards also dictate different approaches to ordering categories on the balance sheet. Under GAAP, current assets are listed first, while a sheet prepared under IFRS begins with non-current assets. Is formatted is different in the US than in other countries. Here are four key differences between GAAP and IFRS. While GAAP and IFRS share many similarities, there are several contrasts, beyond the regions in which they’re applied. Work is being done to converge GAAP and IFRS, but the process has been slow going. These principles are dictated by the International Accounting Standards Board (IASB) and followed in many countries outside the US.ĭeciding which set of standards to use depends on whether your company operates in the US or internationally.
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