When preparing financial statements, companies must adhere to specific accounting frameworks. The International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP) are two prominent frameworks used globally. Understanding the key differences between these standards is crucial for investors and analysts alike.
One notable difference lies in the treatment of development costs. Under IFRS, development costs can be capitalized once specific criteria are met, reflecting an anticipated future economic benefit. In contrast, GAAP typically requires that development costs be expensed as incurred. Knowing how each framework addresses these costs can influence the financial analysis of a company.
Which of the following statements accurately describes a distinction between IFRS and GAAP regarding development costs?