IFRS 2-1: In what ways does the format of a statement of financial of position under IFRS often differ from a balance sheet presented under GAAP?
IFRS does not mandate a specific order or classification of accounts on the statement of financial position. In most cases, companies report assets in reverse order of liquidity. An example of the order of accounts on the statement of financial position is as follows:
- Long Term Assets
- Current Assets
- Shareholder Equity
- Long Term Liabilities
- Current Liabilities
GAAP specifically requires that all accounts be ordered based on their degree of liquidity. Therefore, cash is usually reported first and non-current assets will be reported last. Below is an example of the order typically found on a GAAP balance sheet:
- Current Assets
- Long Term Assets
- Current Liabilities
- Long Term Liabilities
- Shareholder Equity
IFRS 2-2: Do the IFRS and GAAP conceptual frameworks differ in terms of the objective of financial reporting? Explain.
No, GAAP and IFRS maintain very similar viewpoints on the objectivity of financial data. Both of these authoritative bodies agree that financial reporting data should be relevant and faithfully represented. Information that is relevant is anything that could be viewed as useful in the eyes of an investor, creditor, or regulator. Information that is faithfully represented should conform to industry standards and any estimates should be conservative in nature.
IFRS 4-1: Compare and contrast the rules regarding revenue recognition under IFRS versus GAAP.
Under GAAP, it is possible to use cash-basis or accrual basis accounting for revenue recognition. Under cash basis, revenue is recognized with payment is received. Under accrual basis, revenue is recognized when it becomes economically significant. GAAP has specific requirements for various industries on when an event qualifies to be recognized as revenue.
IFRS has fewer requirements on revenue recognition, but follows the same basic principle of economic significance. Revenue can be recorded when t is probable that any future economic benefit associated with the item of revenue will flow to the entity and it can be measured reliably.