US GAAP AND IFRS CONVERGENCE IN THE AREA OF REVENUE RECOGNITION

Abstract

There are two significant systems of financial reporting for world capital market use. There are IFRS and US GAAP. In 2001 the IASB was given a strong mandate by the major constituents of the world´s capital markets to develop a single set of high-quality accounting standards. The effort should was especially aimed at spreading of IFRS around the world and FASB – IASB Convergence Program.

Elimination of existing differences between US GAAP and IFRSs is demanded, because numerous differences between US GAAP and IFRS can result in significant differences in reported numbers. The most significant difference between US GAAP and IFRSs is in the area of general approach. IFRSs are based on basic accounting principles with limited application guidance, US GAAPs are based especially on rules with specific application guidance. FASB and IASB initiated their joint project on revenue recording to converge IFRS and US GAAP in this area.

The aim of the paper is to reveal with the use of comparative analysis main differences in the area of revenue recognition and measurement and to analyze their impact on the balance and recorded income from the operations. Based on that analysis the paper clarifies the basic principles for the revenue recognition which could be applicable consistently to all industries. The paper suggests the principles for initial measurement of revenue.

The paper is divided into three parts. First part covers the theoretical background. In second part the comparative analysis of GAAP and IFRS rules is done. The final part of the paper represents the suggestion of the principles for initial measurement of revenue.

The paper uses standard methods of scientific work. Firstly, the method of comparative analysis and description is used, to identify and analyze the main differences between GAAP and IFRS rules for revenue recording. At the end, the method of synthesis is used to suggest the principles for initial measurement of revenue.