Question

Briefly describe some of the similarities and differences between GAAP and IFRS with respect to the accounting for stockholders’ equity.

Short answer

The essential distinction between the two frameworks is that GAAP is rules-based and IFRS is principles-based.

Step-by-step solution

Meaning of Stockholders Equity

Shareholders' equity refers tothe owners' claim on a company's resources after the debt has been settled. It is additionally known as share capital and has two components. The primary is funds contributed through common or preferred offers within the company and other investments made after the initial installment.

Key similarities between GAAP and IFRS

The key similarities between IFRS and GAAP for exchanges related to stockholders' equity related to

1. The issuance of shares
2. The purchase of Treasury shares
3. The declaration and payment of dividends
4. The costs associated with issuing the offer Earnings are reduced by reducing issuance and contributed (paid-in) capital and
5. Accounting for standard no shares with no par value and expressed value.

Major differences between GAAP and IFRS

1. IFRS is used in more than 110 countries around the world, counting the European Union and several Asian and South American countries. GAAP, on the other hand, is used in the United States. US And companies operating overseas can have more complexities in their bookkeeping.

2. GAAP is more rules-based, whereas IFRS is more principles-based. Under GAAP, companies may have industry-specific rules and regulations, while IFRS has standards that require judgment and, in first-option to decide how to combine them in a particular situation.

3. Both GAAP and IFRS allow for first in, first out (FIFO), weighted-average costing, and specifically identifiable proof-of-stake strategies to honor inventory. In any case, GAAP also allows a Final In, to Begin with, Out (LIFO) strategy, which is not permitted under IFRS.

4. Both methods allow the creation of a list for the price to be advertised. In any case, if the market price subsequently rises, as allows the switch to IFRS prior write-downs. Below GAAP, the reversal of the prior write-down is disallowed. Stock valuations can be more volatile below IFRS.

5. Internal costs to create an intangible asset, such as advancement costs, are capitalized under IFRS when certain criteria are met. These criteria consider long-term financial benefits. Under GAAP, improvement costs are brought in, with the special case of computer programs built internally.

6. IFRS covers the special category of enterprise assets, described as property held for rental salary or capital appreciation. Investment assets are first measured at cost, and, therefore, may be revalued to show value. There is no such split category in GAAP.