Difference Between GAAP and IAS

GAAP vs IAS

To talk about differences between GAAP and IAS, we first need to have an understanding of the two concepts. For a layman, GAAP refers to General Accepted Accounting Principles that are a framework within which financial statements of any company are prepared, summarized and analyzed. They reflect the standards, rules and conventions that are traditionally followed by chartered accountants and accounting firms while recording and presenting the financial results of any company in any country. Different nations have their own versions of GAAP which are slightly different from each other. IAS on the other hand is International Accounting Standards which is an initiative of International Accounting Standards Committee (IASC). IASC aims to standardize accounting all over the world so that accounting principles are same everywhere and the results of different companies can be compared easily.

GAAP

GAAP is not a single rule but a bundle of rules that form a framework under which chartered accountants in any area compute income, assets, liabilities and expenses of firms and record and summarize their financial results. Government does not direct companies as to how they should present their financial statements. Basic objective of any GAAP is to present financial information about the company to potential investors and banks so that they can base their decisions reading this information. Each country has its own GAAP which is used by companies while presenting their financial statements. These rules have evolved over centuries of accounting practices and are easily understood by financial experts, banks, investors and tax authorities.

IAS

With globalization and emergence of multinational companies, GAAP started to present difficulties and even caused resentment and disappointment among parent companies as they found different accounting principles in different countries. International Accounting Standards is the initiative of International Accounting Standards Committee with the objective of having same accounting principles all over the world which will reflect fair and similar financial results of companies wherever they may be located. Though IAS is not binding, most countries try to incorporate changes adopted by IASC in their GAAP to come closer to IAS.

Difference between GAAP and IAS

It is easy to see that both GAAP and IAS are accounting principles that are used to record, summarize and analyze financial results of companies. But these accounting practices have evolved in different countries in different ways which means there are differences that make it difficult to assess and compare the financial performances of two companies operating in different countries. To offset these differences and to have uniformity in these accounting principles and to make financial results as transparent as they could be, IAS was introduced. If we look closely, there is not much of a difference between different GAAP being practiced, and the only difference lies in the way results are interpreted.

It is the aim of IASC to finally have the same accounting principles across the globe to let people have a fair analysis and comparison of performance of different companies.

Recap: (1) GAAP refers to General Accepted Accounting Principles; IAS refers to International Accounting Standards. (2) Both GAAP and IAS are accounting principles that are used to record, summarize and analyze financial results of companies. (3) GAPP is specific to a country; IAS is an internationally accepted standard. (4) IAS is an initiative of International Accounting Standards Committee (IASC). (5) GAAP differ from country to country, but most countries try to incorporate changes adopted by IASC in their GAAP. (6) IAS was introduced to have uniformity in the accounting principles across the world and thereby to have a fair analysis and comparison of performance of different companies.