Accounting and finance are two different things and both of the provisions are important for an organization. Accounting is the name of recorded and maintain the data accordingly while finance is the name of utilizing the funds of an organization at a place from where the likelihood of earning would be on a higher place.
Both of the departments are important for an organization because both of these organization deals entirely with the financial based competitiveness of an organization as a whole. The real productivity of an organization does not relate only with the selling of services and products to the end consumer but there is an important thing related to the same which is complying with the standards accordingly. It is extremely important for an organization to comply with different standards accordingly because the real productivity of an entity lies in this thing. Among number of compliance methods and behaviors, the name of financial based compliance is one of them, which has its own recognition and importance.
Under the ambit of financial compliance, the name of International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) are two of them, whose adherence with the company are more than important. Now, there is a question that which accounting standard is better than the other. This particular debate is very old and still it is getting difficult to reach on a specific decision.
Basically International Financial Reporting Standards made by International Accounting Board (IAB) and the provision of the same are quite important and widely used in the companies predominantly operating in the European Region and most of the Asian region as well, while Generally Accepted Accounting Principles (GAAP) have been used only in America and adjacent countries. The level of understanding of GAAP is more complex than that of IFRS and that is one of the major reasons behind the downfall of this particular accounting standard. GAAP revealed its drawbacks and major loopholes during the current Global Financial Crisis (GFC) due to which many countries including United States (US) were intending to apply IFRS on their companies. The major drawback found in the revaluation of assets. According to GAAP, all the assets which were bought by the organizations to operate accordingly and effectively should be placed on the historical value and it should be like this until and unless the organization went liquidate. On the contrary, IFRS compels the organization to record all of their assets on their current value, because it will assist the company to analyze the expenses and revenue accordingly.
The second most dominating and influential loophole found among GAAP is the value of inventory. Companies which are operating in the standards of GAAP are not able to stay in a specific industry for a long span of time because the stance of liquidation is quite blurred in this particular standard, while in IFRS, inventory amount should be on a specific level of the total balance sheet amount of the company, otherwise management and government would not allow the company to get liquidate without having permission from the big and authentic authorities.
GAAP And IFRS Term Paper Examples
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