U.S. GAAP vs. IFRS: A Comparative Study Regarding How Differences in Accounting Standards Can Affect Understanding of Company Financial Performance (thesis)

Abstract

Internationally, the two main regulatory bodies, which affect company financial reporting, are the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB). The standards they have created, U.S. GAAP and IFRS/IAS, although very similar have key differences which can affect comparability of company financial performance, when analyzing entities following different standards. This paper attempts to address two of these differences, Research and Development Expenditures and Inventory treatment, and their impacts on financial performance. Metrics used to measure this include common financial ratios such as Profit Margin, EBITDA Margin, Return on Assets, and Asset Turnover. Standard and Poor's North America and International Compustat Database was used for analysis, and to look at specific effects on companies, each chapter, both R&D and Inventory, includes a specific comparison of two comparable companies, one following U.S. GAAP and the other adhering to IFRS. This question proves important for financial experts, company managers, individual investors, or any person attempting to compare companies under different accounting standards.