You can take an entire class on the differences between U.S. Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS). But just like all the rest of the accounting information you need to know for the CPA exam, you’ll need to condense it down into a memory-friendly format.
What Are IFRS?
Similar to GAAP, IFRS are a single set of accounting and reporting standards developed by the International Accounting Standards Board (IASB). The goal for IFRS is to make them globally applicable. As companies continue to grow and expand their reaches overseas, having a solid knowledge of IFRS is going to be advantageous, and potentially imperative, in the future.
There has been growing pressure to combine GAAP and IFRS into one database of reporting standards (think how much easier test taking would be!), but as of right now, it hasn’t happened.
Where Will It Be Tested?
Not all CPA exams will go over IFRS. Since REG deals with U.S. tax law, you won’t have to worry about international standards.
However, since FAR, AUD and BEC all deal with financial reporting, you’ll need to know IFRS for them. IFRS will likely be the most heavily tested on FAR as it deals directly with reporting standards. AUD deals with reporting from an auditing perspective and BEC deals with reporting from a business perspective, so you’ll need to know IFRS for those exams also.
The Major Differences
Again, there are entire classes you can take on the difference between GAAP and IFRS (and you should seriously consider taking one if you can). The major difference between U.S. GAAP and IFRS is that IFRS is principle based and GAAP is rules based. In other words, IFRS leaves more open to interpretation by individual companies.
For our purposes, we will go over the major differences, those that you will likely see on the exam:
Remember that these are the major differences. You can also look at all of the International Standards on IFRS’s website and compare them to what you’ve been taught in your GAAP based classes.
Also, keep in mind that standards are always changing. If you are taking the CPA exam in a year, the differences between GAAP and IFRS may not be the same as they are now. For example, when I took the exam, we had to know about how Extraordinary Items were treated on the income statement for GAAP and IFRS. GAAP no longer uses Extraordinary Items, so it isn’t applicable anymore. Do your research for your time frame.
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