IFRS, US GAAP and local frameworks

Accounting standards are rules for recognising, measuring, presenting and disclosing transactions. Different jurisdictions require different sets, so the first question in any technical problem is: which framework applies?

IFRS — the IFRS Foundation, IASB and ISSB. The IFRS Foundation is a not-for-profit, public-interest organisation created in 2001. It oversees two independent standard-setting boards: - the International Accounting Standards Board (IASB), which issues IFRS Accounting Standards (named "IFRS n" for newer standards and "IAS n" for older ones it inherited, plus Interpretations); and - the International Sustainability Standards Board (ISSB), created in 2021, which issues IFRS Sustainability Disclosure Standards — IFRS S1 (general requirements) and IFRS S2 (climate-related disclosures), effective for annual periods beginning on or after 1 January 2024 where a jurisdiction adopts them.

The Foundation reports that companies in more than 140 jurisdictions are required to use IFRS Accounting Standards. The IASB doesn't enforce anything: each jurisdiction decides whether to adopt, endorse or modify the standards, and local regulators enforce them.

US GAAP — FASB, the Codification and the SEC. In the United States, the Financial Accounting Standards Board (FASB) sets US GAAP for non-governmental entities. The Securities and Exchange Commission (SEC) has legal authority over the financial reporting of public companies, and recognises the FASB's standards as "generally accepted" (reaffirmed in a 2003 policy statement under the Sarbanes-Oxley Act). Since 2009 the FASB Accounting Standards Codification has been the single source of authoritative US GAAP for non-governmental entities; new guidance is issued as Accounting Standards Updates (ASUs), which amend the Codification rather than standing alone. SEC rules and interpretive releases are also authoritative for SEC registrants. Foreign private issuers may file with the SEC using IFRS as issued by the IASB without reconciling to US GAAP (since 2008).

Saudi Arabia — SOCPA. The Saudi Organization for Chartered and Professional Accountants (SOCPA) endorses standards for use in the Kingdom. According to the IFRS Foundation's jurisdiction profile, publicly accountable entities — including listed companies — must apply IFRS as endorsed in Saudi Arabia, together with other SOCPA-endorsed pronouncements (for example on Zakat). SMEs apply the IFRS for SMEs Accounting Standard as endorsed in Saudi Arabia, or may elect full endorsed IFRS. SOCPA's endorsement adds some disclosures and limited modifications (and the Capital Market Authority has at times restricted fair value and revaluation options for listed companies). Always check SOCPA's current endorsement documents for a specific entity.

Why frameworks aren't interchangeable. IFRS and US GAAP produce different numbers for the same transactions — inventory, development costs, revaluations, impairment reversals and leases all differ (next lesson). A company must state which framework it applies, and it can describe its statements as compliant with IFRS only if it complies with all the requirements. "IFRS as endorsed in Saudi Arabia" and "IFRS as issued by the IASB" are both precise statements; "broadly IFRS" is not a framework.