International Financial Reporting Standards

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International Accounting Standards
Accounting is the means of providing the financial information of any given organization. It summarizes all the company’s transactions and provides a clear image of the business. Accounting keeps the record of all financial reports which is very important for all the managers and stake holders like share holders, creditors or owners. Every country has its own set rules and follows their own accounting standards. (Duquesne University, 2006). As the economy is becoming globalized, there is a need of following one standardized accounting system. Businesses are expanding worldwide and becoming international and the information of the companies is being analyzed by different investors worldwide; thus there is a need for a change in accounting standards. Comparison between the companies becomes very difficult if we have different accounting standards. However making one standardized accounting system throughout the world can be difficult as every country has a different tax rule, and different laws. Every country thinks differently and has different tax rules, laws, business plans and that is the reason different countries use different accounting standards. International Financial Reporting Standards are being used by nearly 100 countries including European Union, Australia, and South Africa; while some companies have their own accounting standards. Many countries including United States of America use Generally Accepted Accounting Principles (GAAP) which differs from IFRS in some aspects. International Accounting Standards are issued by International Accounting Board. The main purpose of this board is to make IFRS accepted globally. For some countries where capital market reporting is not so important, this change in accounting system will be a big change. This change is very necessary for the betterment of the businesses. The IFRS will help the management to be organized and produce the information which is important and standardized. (IFRS: What is driving change?). United States require the international companies to change their Accounting Statements to Generally Accepted Accounting Principles, if these companies want their capital market to perform in NYSE. This change can create an imbalance in the stock market as the accounting rules of United States may vary from other countries. Differences :

The norms of GAAP and IFRS are quiet similar in some ways; however, some of the norms of IFRS differ from the norms of GAAP in the following ways: •IFRS is principle based where the details are related to the economy and requires more explanation; whereas GAAP is based on more of the rules which at times become difficult to understand. •According to IFRS rules, the statement of other gains and losses should be explained in a separate statement and if there are any kind of a change then it needs to be highlighted in the Statement of Changes in Equity; whereas according to GAAP rules there is a separate statement for gains or losses or they are combined with the Statement of Changes in Equity at the end of the accounting period. •LIFO method is prohibited in IFRS; whereas it is permitted in GAAP. •IFRS permits revaluations of intangible assets that are acquired from third parties in some situations; whereas GAAP does not allow revaluations. •IFRS requires 2 years of financial statements including balance sheet, income statement, cash flow statement, changes in equity, and accounting policies and notes; GAAP on the other hand requires 3 years of these components except balance sheet. •There is no particular format for balance sheet in IFRS. It only requires reliable and relevant information with description; On the other hand, GAAP requires a specified structure of a Balance sheet. It has to be in the decreasing order of its liquidity and can be either classified or non classified. •Like Balance sheet, Income Statement also does not follow any standard format according to...
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