1. Standard-Setting Organizations
  • IASB (International Accounting Standards Board): Issues IFRS (International Financial Reporting Standards). Used by over 140 countries, including the European Union, Australia, and Canada.
  • FASB (Financial Accounting Standards Board): Issues US GAAP (Generally Accepted Accounting Principles). Used primarily by companies operating or listed in the United States.

2. Principles-Based (IFRS) vs. Rules-Based (US GAAP)
The debate between standard structures shapes how accountants exercise professional judgment:
+------------------------+---------------------------------------+------------------------------------------+

| Feature                | IFRS (Principles-Based)               | US GAAP (Rules-Based)                    |
+------------------------+---------------------------------------+------------------------------------------+

| Framework Philosophy   | Focuses on broad economic objectives  | Focuses on specific, bright-line rules   |
|                        | and conceptual clarity.               | and detailed implementation guidance.   |
+------------------------+---------------------------------------+------------------------------------------+

| Professional Judgment  | High. Accountants must apply core     | Low. Accountants match transactions      |
|                        | principles to the transaction's substance. to specific, existing regulatory checklists. |
+------------------------+---------------------------------------+------------------------------------------+

| Litigious Exposure     | Risks misinterpretation due to lack   | Risks technical structuring to bypass   |
|                        | of clear, specific restrictions.      | rules while violating intent.            |
+------------------------+---------------------------------------+------------------------------------------+

| Key Inventory Example  | LIFO method is explicitly forbidden.  | LIFO method is allowed and widely used.  |
+------------------------+---------------------------------------+------------------------------------------+

3. Convergence Initiatives
The IASB and FASB worked on convergence projects (such as the Norwalk Agreement) to eliminate differences between IFRS and US GAAP. While they successfully harmonized major standards like Revenue Recognition (IFRS 15 / ASC 606) and Leases (IFRS 16 / ASC 842), significant differences remain in financial instrument impairment models and asset revaluations.
 
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