Introduction
International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles are the principles that guide accountants on how to treat items in the financial statements. In general, they are known as Internationally Accounting Standards (IAS). According to Duska et al (2011), there has been attempts by Financial Accounting Standards Board (FASB) and Security and Exchange Commission (SEC) to try and converge IFRS and GAAP due to accounting scandals that have happened in recent times arising from the fact that IFRS are principle based while GAAP are rule based. This paper examines the similarities and differences between GAAP and IFRS in treatment of various accounting transactions as outlined below.
a) Stock holders’ equity
In accounting and reporting for stockholder’s equity, there exist both similarities and differences between IFRS and GAAP. For example according to Paul et al (2010), both IFRS and GAAP does not allow a company to record gains or losses on purchase of its own shares though when a company purchases its own shares, IFRS contrary to GAAP, treats this as a reduction of the stakeholder’s equity but does not specify the specific shareholders equity account that is affected. The reduction could be treated as an increase in the contra equity account that is the treasury stock or it could be treated as a reduction in retained earnings or share capital and that the number of treasury shares held is disclosed.
b) Revaluation of Plant Property and Equipment
Another main difference between IFRS and GAAP arises in the account of Revaluation Surplus which arises only under IFRS because companies are allowed to revalue their property, plant and equipment to fair value under certain circumstances under IFRS as opposed to GAAP. Revaluation Surplus is considered under general reserves and is not considered as contributed capital. Accounting relating to previous periods is generally the same under both IFRS and GAAP. However they differ in the way in which errors in the previously issued financial statements should be reported. While IFRS requires restatement with some exceptions, GAAP does not allow any exceptions. There are also differences in the terminologies used to refer to various items in the balance sheet under IFRS and GAAP. Under GAAP, what is referred to as common stock, stockholders, par value, authorized stock, preferred stock and paid in capital are under IFRS, referred to as ordinary share capital, shareholders, nominal value, authorized share capital, preference shares and issued share capital respectively.
c) Dilutive Securities and Earnings per Share
In relation to dilutive securities and earnings per share, the accounting and disclosure and disclosure requirements for accounting for share options and earning per share computations are generally similar between IFRS and United States GAAP though a few differences exist. According to Donald et al (2010), both IFRS and GAAP follow the same model for recognizing share based compensation. Under both IFRS and GAAP, the fair value for shares and options awarded to employees is recognized over the period to which employees’ services relate. IFRS and GAAP although differ in relation to employee share purchase plans; under IFRS, all employee purchase plans are deemed to be compensatory that is, compensation expense is recorded for the amount of discount. In GAAP however, employee share purchase plans are considered non-compensatory hence no compensation is recorded though certain conditions must be met before the employee share purchase plan is considered non-compensatory the most important condition being that the discount awarded to the employees not to exceed 5%. Another difference between the two is that under GAAP, all the proceeds from the convertible debt are recorded as long term debt unless settlement is in cash while under IFRS, convertible bonds are split or separated into the equity component which is equivalent to the value of the conversion option of the bond issue and the debt component. Although the calculation of basic and diluted earnings per share is generally similar in both IFRS and GAAP, harmonization is still required in earnings per share reporting particularly in the area concerning contracts that can be settled in either cash or shares where IFRS insists that share settlement must be used while GAAP lets companies to choose. Another slight difference is that in the case of share modification, both IFRS and GAAP recognize the fair value however, if the modification results in a reduction, IFRS does not permit reduction but GAAP recognizes the reduction.
Pros and Cons
IFRS’s have advantage over GAAP mainly due to the fact that they are principle based that is they adopt accounting principles rather than rules made by authorities hence making them objective. On the other hand, GAAP are tend to follow established rules more than accounting principles therefore they tend to be subjective but this also has the advantage of making the principles more relevant to the social and political environment
Conclusion
Except for the slight highlighted differences, IFRS and US GAAP are similar in many aspects. Their difference does not result in significant differences in the final financial statements. It would therefore be rational to suggest that US GAAP should be converged with IFRS to promote harmony in International Accounting Standards.
Sources;
Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield; Intermediate Accounting (2010)
From:http://books.google.co.ke/books?id=_tmMkC5DNuAC&pg=PA851&dq=dilutive+securities+and+earnings+per+share+IFRS+vs+GAAP+comparison&hl=en&sa=X&ei=DW1NUYPdIeOn0QXOm4DABQ&ved=0CC8Q6AEwAA#v=onepage&q=dilutive%20securities%20and%20earnings%20per%20share%20IFRS%20vs%20GAAP%20comparison&f=false
Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso Accounting: Tools for Business Decision Makers (2010) From;
http://books.google.co.ke/books?id=seNp86zfM-gC&pg=PA620&dq=stock+holders+equity+IFRS+and+GAAP&hl=en&sa=X&ei=ZWpNUbOLLoK_igKeyICIBQ&ved=0CC8Q6AEwAA#v=onepage&q=stock%20holders%20equity%20IFRS%20and%20GAAP&f=false

Ronald D, ?Brenda S and ?Julie A – Accounting Ethics (2011) from;
http://books.google.co.ke/books?id=y4iM-giYuicC&pg=PA200&dq=ADVANTAGES+AND+DISADVANTAGES+OF+GAAP&hl=en&sa=X&ei=8jQPUtvhL-ug7Aaqh4GICg&ved=0CF8Q6AEwCA#v=onepage&q=ADVANTAGES%20AND%20DISADVANTAGES%20OF%20GAAP&f=false
James M. Wahlen, Clyde S, Stephen P. Baginski, Paul R. Brown, Mark T. Bradshaw; Financial Reporting, Financial Statement Analysis, and Valuation (2010) From;
http://books.google.co.ke/books?id=JdsOg4f6ywEC&pg=PA471&dq=accounting+for+Troubled-debt+Restructurings+under+GAAP+and+IFRS+differences&hl=en&sa=X&ei=TItNUausMKm4igKf3oHgCQ&ved=0CD0Q6AEwAg#v=onepage&q=accounting%20for%20Troubled-debt%20Restructurings%20under%20GAAP%20and%20IFRS%20differences&f=false
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