Differences between GAAP and IFRS on Revenue Recognition

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Paul Montgomery
Differences between GAAP and IFRS on Revenue Recognition

General Differences GAAP rules for revenue recognition are detailed regarding specific industries, such as real estate and software. IFRS guidance is universal; Standard 18 sets forth general principles and examples applicable to all industries.

  1. What are the major differences between GAAP and IFRS?
  2. What is GAAP revenue recognition?
  3. How is revenue recognized under IFRS?
  4. What is the difference between IFRS 15 and ASC 606?
  5. What are the similarities and differences between GAAP and IFRS?
  6. Does Apple use GAAP or IFRS?
  7. What are the four criteria for revenue recognition?
  8. What are the 4 principles of GAAP?
  9. What are the 5 steps in the revenue recognition process?
  10. When can revenue be recognized?
  11. How do you recognize revenue under IFRS 15?
  12. How do you calculate revenue recognition?

What are the major differences between GAAP and IFRS?

The primary difference between the two systems is that GAAP is rules-based and IFRS is principles-based. This disconnect manifests itself in specific details and interpretations. Basically, IFRS guidelines provide much less overall detail than GAAP.

What is GAAP revenue recognition?

Revenue recognition is a generally accepted accounting principle (GAAP) that identifies the specific conditions in which revenue is recognized and determines how to account for it. Typically, revenue is recognized when a critical event has occurred, and the dollar amount is easily measurable to the company.

How is revenue recognized under IFRS?

The core principle of IFRS 15 is that revenue is recognised when the goods or services are transferred to the customer, at the transaction price. Revenue is recognised in accordance with that core principle by applying a 5-step model as shown below.

What is the difference between IFRS 15 and ASC 606?

A completed contract under ASC 606 is defined as a contract in which all, or substantially all, the revenue has been recognized. Under IFRS 15, a completed contract is one in which the entity has transferred all goods or services.

What are the similarities and differences between GAAP and IFRS?

GAAP vs. IFRS. A major difference between GAAP and IFRS is that GAAP is rule-based, whereas IFRS is principle-based. With a principle based framework there is the potential for different interpretations of similar transactions, which could lead to extensive disclosures in the financial statements.

Does Apple use GAAP or IFRS?

Apple Inc., along with other companies like Cisco and other companies show their earnings in non-GAAP (generally accepted accounting principles) figures, as they are believed to reflect their earnings better.

What are the four criteria for revenue recognition?

The staff believes that revenue generally is realized or realizable and earned when all of the following criteria are met:

  • Persuasive evidence of an arrangement exists,3
  • Delivery has occurred or services have been rendered,4
  • The seller's price to the buyer is fixed or determinable,5 ...
  • Collectibility is reasonably assured.

What are the 4 principles of GAAP?

Four Constraints

The four basic constraints associated with GAAP include objectivity, materiality, consistency and prudence.

What are the 5 steps in the revenue recognition process?

5 Steps to the New Revenue Recognition Standard

  1. Step one: Identify the contract with a customer. ...
  2. Step two: Identify each performance obligation in the contract. ...
  3. Step three: Determine the transaction price. ...
  4. Step four: Allocate the transaction price to each performance obligation. ...
  5. Step five: Recognize revenue when or as each performance obligation is satisfied.

When can revenue be recognized?

According to the principle, revenues are recognized when they are realized or realizable, and are earned (usually when goods are transferred or services rendered), no matter when cash is received. In cash accounting – in contrast – revenues are recognized when cash is received no matter when goods or services are sold.

How do you recognize revenue under IFRS 15?

Accounting requirements for revenue

  1. Identify the contract(s) with a customer.
  2. Identify the performance obligations in the contract.
  3. Determine the transaction price.
  4. Allocate the transaction price to the performance obligations in the contract.
  5. Recognise revenue when (or as) the entity satisfies a performance obligation.

How do you calculate revenue recognition?

Multiply total estimated contract revenue by the estimated completion percentage to arrive at the total amount of revenue that can be recognized. Subtract the contract revenue recognized to date through the preceding period from the total amount of revenue that can be recognized.


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