There are two governing accounting bodies that set the standards for accounting policies and procedures. First, the Financial Accounting Standards Board (FASB) which operates within a set of Generally Accepted Accounting Principles (GAAP). GAAP is used solely by the United States and is followed by all firms who release financial statements to the public. Second, the International Financial Reporting Standards (IFRS) sets principles that are followed by all other countries. Despite some similarities and differences between each accounting entity there are some advantages and disadvantages to converging the FASB, and the IFRS. Generally Accepted Accounting Principles, also called GAAP, is the accounting standard adopted by the U.S. Securities …show more content…
An understanding of the ten principles will allow for a better understanding of GAAP (Willmore). Financial statements are completed by firms based on the following assumptions and principles. Economic entity assumption, monetary unit assumption, time-period assumption, cost principle, full disclosure principle, going concern principle, matching principle, revenue recognition principle, materiality, and conservatism …show more content…
Some of these topics that are a focus of debate regarding the convergence of these two accounting bodies include; inventory valuation, financial statement presentation, and leases (Willmore). One of the main differences between the two accounting bodies pertains to the standards in which inventory is valued. There are two ways that GAAP accounts for inventory. First in, First Out (FIFO) allows for the oldest inventory to be sold first. Last in, first out (LIFO), on the other hand, allows for the most recent inventory to be sold first leaving the old inventory to be sold last (Gray). LIFO is prohibited by the IFRS due to the misrepresentation it can have on financial statements (Gray). Some incentives for companies to utilize LIFO under GAAP allow for companies to report a lower taxable income because cost of goods sold is higher using this method (Willmore). Some believe that using LIFO provides more stable profits and allows for a better measure of income and earnings