The fact that the Financial Accounting and Reporting (FAR) exam tests student's knowledge of American Generally Accepted Accounting Practices (GAAP) is well known and to be expected.  However, many students have minimal experience with the International Financial Reporting Standards (IFRS), also covered by the exam.  

Despite any unfamiliarity, this should not cause undue concern; most questions will relate to GAAP. What's most important is understanding the key differences of financial statement preparation for IFRS, in comparison to GAAP. 

GAAP
  
In the United States, the Financial Accounting Standards Board (FASB) created the Generally Accepted Accounting Practices (GAAP) as a rules-based set of standards governing all accounting activity. Standards are most frequently presented as clear-cut, well-defined procedural guidelines that must be adhered to when formally presenting recognition, measurement and financial statement data.  
GAAP-regulated disclosure of company expenditures is found in the footnotes of financial statements. These identify a firm's principle accounting policies and methods for booking revenues and expenses, as well as details about its assets and liabilities.

IFRS 

The IFRS provides accounting standards used in 110 nations, particularly the Europe Union (EU). IFRS is aligned with the International Accounting Standards Board (IASB), an independent accounting standard-setter based in London. IFRS accounting is more principles-based than GAAP's. In the view of many, this emphasis on process generates a more accurate report of financial transactions, in terms of actual cash-in/cash-out in corporate business activity. 

The FAR exam has been featuring questions contrasting GAAP and IFRS since 2011. Typical are these examples:
For instance, regarding the balance sheet, IFRS processes call for an income statement, changes in equity, cash flow statement and footnotes; in contrast, GAAP guidelines require these four items AND an accompanying statement of comprehensive income. Additional significant differences between GAAP/IFRS when preparing financial statements are represented in Table 1:


Table 1: Financial Statement Differences: GAAP/IFRS
TOPIC
GAAP
IFRS
Inventory costs
Either first-in/first-out (FIFO) or last-in/first-out (LIFO) estimates accepted
No LIFO
Balance sheet
Separation of current/noncurrent assets & liabilities a requirement
Separation of current/noncurrent assets & liabilities suggested
Intangibles
Recognized at fair value
Recognized only if measured reliability is demonstrated, & the asset possesses future economic value
Bank overdrafts
Recorded as a financing activity
May be included in cash if used in cash management
Write-downs
Reversal prohibited, once inventory is written-down
Future reversal allowed, if specific criteria met
Deferred taxes
Entered with assets/liabilities
Recorded on the balance sheet as separate line items
Minority interests -/\- extraordinary items
Recorded in liabilities as separate line items -/\- Permitted if they are unusual & occur rarely
Recorded in equity as separate line items -/\- Prohibited


 

These essential differences should provide the basis for preparation for the FAR, when studying differences between GAAP and IFRS financial recording.

You'll find far fewer questions about IFRS than GAAP, and the differences between their accounting and reporting rules are not exceptionally significant in most cases.  A good knowledge of GAAP will provide most of what you need to know.  The major diversity is essentially theoretical, and a matter of rules (GAAP) vs. process (IFRS), and you'll acquire the most important material through study.  Learn IFRS; don't stress about it.   Remember too, that there is some speculation the Securities and Exchange Commission (SEC) may adopt the IFRS after 2015, at which time it may figure more prominently on the FAR.

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