Published on April 21st, 2023.

IFRS vs. GAAP

IFRS and GAAP are two accounting standards and principles adopted by numerous countries around the world. Accounting guidelines are crucial to preparing accurate financial statements that will provide investors with correct information about a company’s financial performance. IFRS, or International Financial Reporting Standards, is used by over 110 countries around the world, such as Canada and typically all countries involved in financial reporting outside the United States. On the other hand, GAAP, or Generally Accepted Accounting Principles, is created by the Financial Accounting Standards Board (FASB) and they are solely used by companies in the United States. Although IFRS and GAAP are both a set of accounting standards and principles, accounting processes under GAAP are more rules- and procedures-based with little room for personal interpretation, while IFRS are standards that companies should follow but have the option of interpreting based on their own judgment.

IFRS in Canada & ASPE

As of January 1st, 2011, all publicly traded companies in Canada must use IFRS to prepare their financial statements. However, companies also filing in the United States are permitted to use GAAP. Private companies have the option of adopting IFRS or ASPE (Accounting Standard for Private Enterprises). ASPE are accounting standards and principles for Canadian small- and medium-sized enterprises (SMEs) that use financial statements for general purposes, but do not publicly disclose them since their stocks are not traded on a public stock exchange. Companies that follow ASPE must abide by tax reporting laws set by the government, as would any company using IFRS.

Key Differences Between IFRS & GAAP

There are numerous key differences in the accounting processes between the two standards and principles that set them apart. One key difference is the accounting method of inventory valuation. Under IFRS, the LIFO (last in first out) inventory method is completely prohibited, while all three inventory methods, LIFO, FIFO (first in first out), and weighted average, can be used under GAAP.

Choosing Between IFRS, GAAP & ASPE

With a better understanding of the accounting standards and principles, it is crucial to choose the method that is accepted in your country and best suits your business. In the United States, domestic public companies must use GAAP, however, IFRS can be used by foreign companies. Since IFRS is used by most countries around the world, it provides more advantages for investors and international companies. Nevertheless, all three accounting guidelines provide their own advantages. So, which accounting standard should you choose? It is crucial to base your decision on the way you use your financial statements, and most importantly, you should choose the set of standards that is accepted in the country you choose to report financial statements and run your business. 

Sources:

Accounting Standards for Private Enterprises (ASPE) 

GAAP vs. IFRS: What's the Difference? 

GAAP vs. IFRS: What are the key differences and which should you use? 

IFRS - View Jurisdiction (Canada) 

IFRS - View Jurisdiction (United States) 

IFRS vs. GAAP: What's the Difference? 

IFRS vs. US GAAP 

International Financial Reporting Standards (IFRS)