GAAP vs IFRS: Definitions, Differences & Purposes

By IIC Lakshya

21 Nov 2025

Others

GAAP vs IFRS: Definitions, Differences & Purposes

Financial guides, GAAP and IFRS are prepared by organisations to inform and guide companies to create and present financial statements for the public. Furthermore, both GAAP and IFRS have specific purposes to inform companies about the rules and regulations framework. In this article, these two guides are discussed in detail below.

What is GAAP?

The accounting principles that are developed by the Financial Accounting Standards Board (FASB) are used effectively in the United States and are known as GAAP. The full form of GAAP is Generally Accepted Accounting Principles. The purpose is to integrate reliable financial consistency, comparability and reliability for the U.S. stakeholders in financial reporting.

What is IFRS?

Established by the International Accounting Standards Board (IASB), the IFRS is used across 140 countries. The full form of IFRS is International Financial Reporting Standards, and the purpose is to focus on economic substance and global comparability. It helps in several multinational activities of organisations. Professionals pursuing a diploma in the IFRS course learn about the standards to be implemented.

Key Differences Between GAAP and IFRS

Here is a detailed tabular form of the key differences between GAAP and IFRS. It will help you understand the situations in which companies apply specific principles and how they resolve issues. Students study GAAP accounting and IFRS certifications to pursue a professional career in the future.

Key Features	GAAP	IFRS
Approach	Specific and detailed guidelines Rules-based rules	Broad and flexible professional judgement Principles-based performance
Asset Valuation	The cost model is used Revaluation of assets cannot be done upwards	Revaluation is allowed to establish the fair market value or the cost model
Development Costs	It is identified as expenses incurred; of course, there are some exceptions to software	It is capitalized where specific conditions are met
Geographic Use	It is primarily practised in the United States	It is practised across 140 countries, which include Canada, the UK and the EU
Inventory Valuation	Use of LIFO - Last-In, First-Out	Does not use LIFO, only weighted-average cost or FIFO is allowed
Lease Accounting	Finance and operating leases are treated differently	All leases are treated similarly to all leases under GAAP

Purpose of GAAP

The Financial Accounting Standards Board (FASB) in the United States has set GAAP. The purpose of GAAP is to focus on comparability, reliability, and consistency on the part of the companies. It helps in integrating transparency for U.S. stakeholders in financial reporting. There are some aspects similar to IFRS, hence aspirants can benefit from a diploma in IFRS.

Protect Public Markets and Investors

Audited and transparent information is a significant aspect of a company when it does business in the U.S. capital markets. It is GAAP that ensures that companies, stakeholders, and investors can make informed and safe decisions. It also guides companies about impending market changes, leading to risk evaluation. These are essential Commerce skills to boost entrepreneurial success in the marketplace.

Regulatory Oversight

All companies in use that publicly trade must follow GAAP as the Securities and Exchange Commission (SEC) of the U.S. has made it compulsory. They are the authority in the United States to set the accounting standards and the financial statements analysis of the companies.

They have asked the Financial Accounting Standards Board (FASB) to develop the GAAP guidelines for companies to follow and practice. With the proper guidance, students learn about the development of a financial strategy in Commerce. It will enhance their professional skills.

Enhance Reliability and Accuracy

GAAP is implemented, which helps in increasing accuracy and reliability, as it helps in reducing manipulation or misstatements of resources. Liabilities, expenses, assets, and income are all measured effectively without making any mistakes.

Purpose of IFRS

The International Accounting Standards Board (IASB) has created this set of rules and regulations for companies to establish transparency and accountability in their financial performance. IFRS is a significant set of principles recognised in over 140 countries, focusing on economic substance and global comparability. This is why there are several career options and a high salary after a diploma in IFRS worldwide.

Economic Reality over Strict Rules

IFRS is quite significant for companies, especially with the financial principles. It is quite effective in informing companies that are aiming to establish good economic performance and maintain accountability. All transactions of the company are recorded legally.

Enhance Efficiency

IFRS implementation helps in enhancing efficiency by informing multinational companies about significant financial principles. Multinational companies that work in various jurisdictions can avoid the increased cost and the complexity of financial statement preparation in every country with the implementation of IFRS.

Improve Comparability and Transparency

Investors use IFRS to compare companies situated globally. With the implementation of IFRS, companies establish transparency. The IFRS rules and regulations help investors to apply comparative principles, thus evaluating the financial performance of the company. It helps them decide on which company they can invest in. This is one of the advantages of IFRS; hence, read the advantages and disadvantages of IFRS, helping students develop a deeper understanding.

Which is Better: GAAP vs IFRS?

In conclusion, the GAAP and IFRS might be similar in nature, but we cannot compare them. It is necessary for all companies with financial responsibilities to distribute financial information and statements publicly. It ensures that transparency and accountability are met, hence, GAAP and IFRS guide them into this process effectively. The accounting principles are effective for companies and their financial decisions.

Frequently Asked Questions on GAAP vs IFRS

What are the two types of GAAP?

There are two types of GAAP, one is rule-based GAAP and principle-based GAAP.

What are the 4 pillars of IFRS?

The 4 pillars that are significant for IFRS implementation and practice are strategy, metrics and targets, governance and risk management.

What are the 5 basic accounting principles?

There are 5 basic accounting principles which are used effectively to create a framework which helps in record keeping and reporting of financial transaction statements. The principles are:

Accrual Principle
Conservatism Principle
Historical Cost Principle
Going Concern Principle
Matching Principle

Is India using IFRS?

India initially did not implement IFRS directly; instead, it converged later. The authorities have created their own set of standards, which the companies used effectively and are called Indian Accounting Standards (Ind AS). Most of these rules harmonise the IFRS, thus allowing the financial reporting of Indian companies to be recognised globally.