Important Differences between U.S. and International Accounting Standards
Part of the Intermediate Accounting For Dummies Cheat Sheet
Your intermediate accounting textbook homes in on generally accepted accounting principles (GAAP) in the United States, but, where applicable, points out international perspectives for accounting for the same events. Both positions are noted because GAAP and international accounting standards are on the road toward convergence, and one set of global accounting standards could evolve.. Here are some key differences between U.S. and international accounting standards:
Extraordinary items: These items are unusual in nature and infrequent in occurrence. An example could be losses resulting from a major casualty such as a fire. US GAAP allows special financial reporting for these types of events while international standards do not.
Accounting for leases: Whether a company expenses lease payments or treats them like loan payments divvying up the payment between principle and interest under US GAAP depends on GAAP capitalization rules. International standards are more user-friendly, and look at the basic facts and circumstances of the lease to determine whether lease payments are expensed or capitalized.
Tax deferrals: Deferrals arise on the balance sheet because of the difference between financial and tax income. US GAAP allows for the classification of the deferrals as current or non-current, depending on the situation. International standards only allows for non-current treatment of these deferrals.
Balance sheet preparation: It's Financial Accounting 101 knowledge that current accounts show up on the balance sheet before non-current ones. For example, current assets like cash list before property, plant, and equipment. However, companies using international standards often list non-current liabilities before current ones.
Monetary assumptions: US GAAP ignores the effect of inflation and deflation for accounting measurement and analysis. Using international accounting standards, countries with persistent inflation will general a price-index to adjust for inflation's effect on their financial reporting.