Globalization is a trend businesses cannot ignore. The transformation to International Financial Reporting Standards (IFRS) from U.S. GAAP began in early 2005, with numerous states in the European Union adopting techniques to prepare their financials in accordance with the new standards. Since 2005, many states that were planning on converting to U.S. based Generally Accepted Accounting Principles (GAAP) have switched their focus to adopting IFRS. Countries like New Zealand, Canada, and Australia have already implemented IFRS, while Japan plans to do so by 2011 and the United States by 2014; a huge change that will affect everyone.

Now that a little background has been brought to the table on the history of International Financial Reporting Standards, it is important that you know the key differences when comparing U.S. based GAAP with IFRS. To begin, IFRS does not permit Last in First Out (LIFO) as an inventory cost method. However, it is to my knowledge that only a small number of companies, about ten percent still use LIFO. IFRS ideas regarding revenue recognition are more widespread than GAAP containing very little instruction specific to each industry. IFRS uses a single-step method for impairment write-downs compared to the two-step method U.S. GAAP supports. Under the single-step method, write downs are far more likely to take place. Overall, the main and most important difference is the fact that IFRS provides much less specific detail and has fewer requirements to adhere to in reporting than GAAP does.

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