Globalization has led most of the countries to follow and teach the IFRS principles. Companies based in the United States follow GAAP rules, which creates complications for US companies that want to do business internationally. Both accounting practices provide accurate and useful interpretations of a company’s financial condition. However, the comparison of a financial statement that is made in accordance with GAAP with a statement that follows IFRS could lead to material discrepancies.

The United States uses GAAP or Generally Accepted Accounting Principles for financial reporting. GAAP are rules that must be followed in financial statements and are only acceptable within the US. Unlike GAAP, IFRS or International Financial Reporting Standards are principal based. This means that when business transactions occur, GAAP must follow a certain progression of steps to record it. While IFRS can interpret the transaction in different ways. Another difference between principles-based IFRS and rules-based GAAP is that you can’t find a loophole in principle as easily as you can find a rule. Since the principles are vaguer than a specific rule, it covers more potential threats to misinformation. An example of this would be the historical cost used in GAAP versus the “actual value” used by IFRS for fixed assets. Historical cost uses the price paid for the asset while “actual value” uses the estimated value of the asset today. “Real value” is extremely useful for companies that invest in something for their future financial benefit.

Another face of American companies is the work of double bookkeeping. To report and audit financial information, companies based in the United States must use GAPP, which is useful when comparing financial statements with other companies based in the United States or internally within the business for management. However, for international information, and in more than 110 countries, the International Financial Reporting Standards are used. (Bannister) The work of double counting is also extensive. An example would be that IFRS does not recognize LIFO as an acceptable inventory system. If the cost of a product is increasing, using LIFO saves the business money because higher cost compared to gross income results in less taxable income. If a company using LIFO needed to report internationally now, any financial statements involving inventory would have to be re-evaluated for compliance with IFRS. (Intuit team) This double counting creates an additional disadvantage in addition to making more work for accountants in the United States.

Accountants who studied in the United States are taught how to comply with GAAP when doing financial reporting, and the CPA exam certifies them to do so. However, they are not taught to comply with IFRS principles, so they may not be preparing the best financial statements that comply with IFRS. This is bad for the company submitting the information because it may not be the best possible report for the company. It is also detrimental to all accountants taught in the United States. In an increasingly globalized world economy, accountants taught to satisfy the accounting rules of a single country are less valuable than accounting that can satisfy the accounting principles of more than 100 countries.