Question

A major way in which ifrs differs from gaap that will affect the design of a company's general ledger and reporting system is an ifrs principle known as

a) Fair Value Measurement
b) Historical Cost
c) Materiality
d) Conservatism

Answer 1

IFRS differs from GAAP in terms of fair value measurement, which affects the design of a company's general ledger and reporting system.

Step-by-step explanation:

A major way in which IFRS differs from GAAP that will affect the design of a company's general ledger and reporting system is Fair Value Measurement. Under IFRS, assets and liabilities are often measured at fair value, which is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm's length transaction. This differs from GAAP's historical cost principle, which states that assets and liabilities should be initially recorded at their historical cost.

For example, if a company owns a piece of real estate, under IFRS, it might be measured at its fair value, which could be its market value at the current time. However, under GAAP, it would be recorded at its historical cost, which is the price the company paid to acquire the property.

This difference in measurement can impact the general ledger and reporting system as it requires different accounts and valuation methods to be used for assets and liabilities under IFRS compared to GAAP.