Accounting Standards: GAAP and IFRS

Managerial accounting follows many standards and procedures in many fields of business, such as economics, financial management, accounting, and others, depending on the need of the management. Accounting standards relate to all aspects of an entity’s finances, including assets, liabilities, revenue, expenses and shareholders’ equity. GAAP, or Generally Accepted Accounting Principles, comprise an established set of standards applicable to a specific jurisdiction. In the US, GAAPs are established and maintained by the Financial Accounting Standards Board (FRSB).

What Are the Objectives of Financial Accounting?

GAAP accounting standards in the preparation of their financial statements to be listed on a U.S. securities exchange. Accounting standards ensure the financial statements from multiple companies are comparable. Because all entities follow the same rules, accounting standards make the financial statements credible and allow for more economic decisions based on accurate and consistent information.

The Difference Between Principles-Based and Rules-Based Accounting

In the United States, the generally accepted accounting principles (GAAP) form the set of accounting standards widely accepted for preparing financial statements. International companies follow the International Financial Reporting Standards (IFRS), which are set by the International Accounting Standards Board and serve as the guideline for non-U.S. Accounting standards specify when and how economic events are to be recognized, measured, and displayed. In the United States, the generally accepted accounting principles (GAAP) form the set of accounting standards widely accepted for preparing financial statements. Its aim is to improve the a common set of accounting standards and procedures are called clarity, consistency, and comparability of the communication of financial information.

Do all countries follow the same GAAP?

• Basically, it is a common set of accounting principles, standards, and procedures issued by the Financial Accounting Standards Board (FASB).
• GAAP, or Generally Accepted Accounting Principles, comprise an established set of standards applicable to a specific jurisdiction.
• An accounting standard outlines an integrated framework that guides how financial transactions are recorded and reported.
• Managerial accounting follows many standards and procedures in many fields of business, such as economics, financial management, accounting, and others, depending on the need of the management.
• Generally accepted accounting principles or GAAP are rules, conventions, procedures, and standards that are accepted in a community.
• Accounting standards vary in different countries; however, there is a current move towards worldwide adoption of the International Financial Reporting Standards (IFRS).

IFRS have been adopted by many countries, in a vision to establish a common set of accounting standards around the world. The American Institute of Accountants, which is now known as the American Institute of Certified Public Accountants, and the New York Stock Exchange attempted to launch the first accounting standards in the 1930s. Following this attempt came the Securities Act of 1933 and the Securities Exchange Act of 1934, which created the Securities and Exchange Commission. Accounting standards have also been established by the Governmental Accounting Standards Board for accounting principles for all state and local governments. Accounting standards relate to all aspects of an entity’s finances, including assets, liabilities, revenue, expenses, and shareholders’ equity.

What Are Generally Accepted Accounting Principles (GAAP)?

Accounting standards improve the transparency of financial reporting in all countries. They specify when and how economic events are to be recognized, measured, and displayed. External entities, such as banks, investors, and regulatory agencies, rely on accounting standards to ensure relevant and accurate information is provided about the entity.

In the United States, GAAP consists of rules and standards established by the Financial Accounting Standards Board (FASB). However, there is a current move to shift towards International Financial Accounting Standards (IFRS). Accounting standards vary in different countries; however, there is a current move towards worldwide adoption of the International Financial Reporting Standards (IFRS).

• IFRS is thought to be more dynamic than GAAP in that it is regularly being revised in response to an ever-changing financial environment.
• Following this attempt came the Securities Act of 1933 and the Securities Exchange Act of 1934, which created the Securities and Exchange Commission.
• Accounting standards ensure the financial statements from multiple companies are comparable.
• In the US, GAAPs are established and maintained by the Financial Accounting Standards Board (FRSB).

Specific examples of accounting standards include revenue recognition, asset classification, allowable methods for depreciation, what is considered depreciable, lease classifications, and outstanding share measurement. IFRS, or International Financial Reporting Standards, are established by the International Accounting Standards Board (IASB) in London, and aims to set forth a globally accepted set of accounting principles. Financial accounting, as opposed to managerial accounting, strictly follows GAAP.

How do investors and lenders benefit from financial accounting?

The IASB establishes and interprets the international communities’ accounting standards when preparing financial statements. Accounting standards ensure that the financial statements from multiple companies are comparable. Generally accepted accounting standards set the rules and procedures to be followed when preparing and interpreting financial statements. International Financial Reporting Standards or IFRS are published by the International Accounting Standards Board, an independent standard-setting organization based in London.

Basically, it is a common set of accounting principles, standards, and procedures issued by the Financial Accounting Standards Board (FASB). Public companies in the United States must follow GAAP when their accountants compile their financial statements. The American Institute of Certified Public Accountants developed, managed and enacted the first set of accounting standards. In 1973, these responsibilities were given to the newly created Financial Accounting Standards Board. The Securities and Exchange Commission requires all listed companies to adhere to U.S.