I have been asked a few questions about GAAP and IFRS. One of the questions is to explain what GAAP is. Another one of the questions is to explain what IFRS is and then give my opinion on whether I think it is a good or bad idea that GAAP should be abandoned for IFRS and why I feel that way. So, I will start with the first question, what is the GAAP?GAAP, what is it? The GAAP is an abbreviation. It stands for Generally Accepted Accounting Principles. A law and business editor, Mark Reutter (2004), declared that the GAAP is defined as the acceptable methods of accounting. The principles, accounting assumptions, and the constraints are provided by GAAP. According to the Professor of Accounting, Carl S. Warren, and Philip E. Fess (1987), it is the accounting rules. Now, what about the IFRS, what is IFRS?What is IFRS? IFRS is the abbreviation for International Financial Reporting Standards. The International Accounting Standards Board or IAS issued the IFRS (Investopedia, 2008). The IFRS states how certain types of transactions on financial statements should be reported (Investopedia, 2008). The purpose of the IFRS is to make evaluations as easy as possible internationally, which is rather difficult because every country has their own set of rules (Investopedia, 2008). An example would be the Canadian GAAP is different than the U.S.GAAP.
Now, should GAAP be abandoned for IFRS? No. The GAAP is more detailed in reporting of retiree medical liabilities and assets, and pension plans than IFRS. In addition to that the IASB will have to make better changes to the application of the IFRS and make the standards more consistent. Companies in different countries have the option to avoid particular IFRS accounting treatments, bringing inconsistency to the IAS (Crain Communications Inc, 2008).