Revenue Recognition Differences Between IFRS and GAAP

Medium Financial Reporting Standards Comparison Of Ifrs And Gaap

In financial reporting, entities must comply with various accounting standards. When comparing International Financial Reporting Standards (IFRS) with Generally Accepted Accounting Principles (GAAP), it's important to recognize key differences in how certain transactions are reported.

One such area of difference arises in the treatment of revenue recognition. Under IFRS, there is a single framework known as IFRS 15, which outlines revenue recognition principles based on the transfer of control. Conversely, GAAP historically had multiple standards, but now also aligns with IFRS through ASU 2014-09, which incorporates the 'transfer of control' concept.

However, the specifics of applying these standards can lead to varying interpretations. Consider the differences in recognizing revenue from long-term contracts.

Which of the following statements accurately describes a key difference in revenue recognition between IFRS and GAAP for long-term contracts?

IFRS requires percentage-of-completion method for all long-term contracts, while GAAP allows both percentage-of-completion and completed-contract methods.

GAAP exclusively uses the completed-contract method for all long-term contracts, whereas IFRS allows the completed-contract method under certain conditions.

Both IFRS and GAAP strictly require the completed-contract method for all long-term contracts.

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