Comparing IFRS to GAAP Coursework Example | Topics and Well Written Essays - 1000 words

Comparing IFRS to GAAP - Coursework Example This document will focus on specific differences and similarities between IFRS and GAAP as applicable in businesses across the globe. Although GAAP and IFRS are similar in their application and usually results to uniform results, there are slight variations arise where GAAP and IFRS offer options due to the nature of the business, company’s interpretation of principles, industry practices and details of transactions. The FASB and IASB have adopted criteria for fair measurement of financial instruments in order to reflect the fair value of business assets and liabilities. Fair value is used to refer to the current market value of the financial instruments. The boards have adopted two steps to ensure fair value measurements whereby businesses are supposed to record particular financial instruments to reflect their current market value. The approaches include â€Å"disclosure of the fair value information in the notes† and â€Å"fair value option† that allows companies to record particular financial instruments at fair value in the financial report. However, IFRS differ from US GAAP in some ways because IFRS examines specific loans and debtors to ensure the same is not impaired, and. In addition, GAAP and IFRS employ different criteria for recording a factoring transaction whereby, IFRS applies the combination of methods dealing with reward, risk and loss control whereas GAAP applies t he loss of control as the chief method. Also, GAAP takes into consideration the incomplete derecognition of receivables while IFRS does not allow incomplete derecognition of receivables (Kimmel, 2013). Depreciation refers to distribution or spread of costs of assets over its useful life according to IFRS (Shamrock, 2012). Depreciation reflects the value of assets over a given period and depicts the potential of that asset to generate income for the business. It portrays the diminishing utility of the asset in business. Depreciation of components is essential when making a major financial decision such as during mergers and acquisitions, when preparing the financial report at the end of the trading period and when disposing of or acquiring additional depreciable assets to reflect the current value of the assets (Shamrock, 2012).