Mod 1 CA
March 8, 2013
Generally Accepted Accounting Principles (US GAAP)
The common set of accounting principles, standards and procedures that companies use to compile their financial statements are called Generally Accepted Accounting Principles. GAAP are a combination of authoritative standards (set by policy boards) and simply the commonly accepted ways of recording and reporting accounting information. “Published accounts have to follow the GAAP for the particular country. Some global companies that are listed on different stock exchanges have to publish accounts (and have them audited) to conform to the various nuances that vary from country to country.” (Benedicto, 2008) GAAP are imposed on companies so investors have a minimum level of consistency in the financial statements they use when analyzing companies for investment purposes. GAAP covers revenue recognition, balance sheet item classification, and outstanding share measurements. When reporting their financial data via financial statements, companies are expected to follow GAAP rules. GAAP is only a set of standards. There is plenty of room within GAAP for accountants to distort figures. Therefore, even when a company uses GAAP, you still need to scrutinize its financial statements. International Accounting Standards (IFRS)
IFRS are International Financial Reporting Standards issued by the International Accounting Standards Board (IASB). Nearly 100 countries use or coordinate with IFRS. These countries or groups of countries include the European Union, Australia, and South Africa. While some countries require all companies to adhere to IFRS, others merely allow it or try to coordinate their own country’s standards to be similar. The IASB is working toward this goal in a partnership with some of the most influential accounting standard-setters across the globe. Because of globalization, it is paramount that the world markets be on one accord...