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International Financial Reporting Standards ( IFRS ) and Generally Accepted Accounting Principles ( GAAP ) are two sets of accounting standards used worldwide. Here's a
International Financial Reporting Standards IFRS and Generally Accepted Accounting Principles GAAP are two sets of accounting standards used worldwide.
Here's a brief comparison:
Scope:
IFRS: Developed by the International Accounting Standards Board IASB IFRS is used in over countries, including the European Union, Australia, and many Asian countries.
GAAP: Generally Accepted Accounting Principles are specific to the United States and are set by the Financial Accounting Standards Board FASB
Principles vs Rules:
IFRS: Emphasizes principlesbased standards, which provide guidelines and principles for preparing financial statements. This allows for more flexibility and judgment in financial reporting.
GAAP: Often considered more rulesbased, with specific guidelines and rules for various transactions and events.
Hierarchy of Principles:
IFRS: No strict hierarchy of principles. IFRS provides principles and guidelines, allowing for interpretation based on specific circumstances.
GAAP: Follows a strict hierarchy of accounting principles, with specific rules for different situations.
Reporting of Financial Instruments:
IFRS: Allows for more flexibility in the classification and measurement of financial instruments.
GAAP: Has more detailed rules for the classification and measurement of financial instruments.
Treatment of Inventory:
IFRS: Permits the use of the Last In First Out LIFO method for inventory valuation, although it's less common.
GAAP: Allows for the use of LIFO, but it's widely used and accepted.
Now, here's an objective type question based on the information provided:
Which accounting standard allows for more flexibility in financial reporting?
a IFRS
b GAAP
c Both IFRS and GAAP
d None of the above
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