General Accounting Principles | Free Essay Example

General Accounting Principles

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Topic: Business & Economics
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Introduction

The International Accounting Standards Board (IASB) is an independent committee of accounting experts who sets the standard of accounts as regulated by the International Financial Reporting Standard (IFRS). The board was formed to succeed the International Accounting Standards Committee (IASC) in 2001. The board has a task of constituting accounting standards to be used by the different stakeholders in the financial environment.

The standards are set to bring conformity when preparing accounting data and information. Different organizations and governments use this information to compare different financial positions in firms. The board has 14 members who are selected to head the International Accounting Standards Board. The members are selected on merit.

They should be able to prepare and establish accounting standards to be used globally by different firms when preparing their financial accounts. The members should have experience in standard setting, preparing, and using accounts. The International Financial Reporting Standard Foundation raises most of its funding from banks and other financial institutions that use this information and want to promote same international standards (Greuning, Scott and Terblanche 45).

International Financial Reporting Standards

The Financial Reporting Standards (IFRS) refer to the criteria used by accountants and financial analysts to bring business affairs to an understandable level around the world. In this case, each company can use the standards and get better results that can be compared with other companies’ results. The standards are derived to harmonize accounting knowledge around the world.

The International Accounting Standards Committee (IASC) is trusted with the task of harmonizing accounting regulations and procedures across the world. This is aimed at establishing a common language so that accounting information can be understandable across the world. The international accounting standards have been used to replace national accounting standards in different countries (Larkin and DiTommaso 23).

In the United States, Generally Accepted Accounting Principles (GAAP) is a set of rules and regulations that help to govern the accounting industry in the country. The set of rules has been derived by the U.S Securities and Exchange Commission (SEC). The rules are used to prepare the financial statements in different organizations and governments.

When the financial statements are prepared, they are presented and reported according to the principles set by GAAP. The US government requires same accounting procedures and rules to be followed when preparing accounting statements for public companies, as well as nongovernmental organizations (NGOs). The International Financial Reporting Committee is an internationally recognized committee that helps to establish and improve standards of international financial accounting and reporting.

The IFRS differs from GAAP in terms of the authority and control. GAAP only applies to companies in the United States while IFRS applies to firms all over the world. The IFRS takes precedence when applied to companies in the United States (Flood, 89).

Comparison between the US GAAP and IFRS

IFRS and GAAP are used to set rules that concern the accounting field. The two are used by different firms in the U.S to prepare, present, and report accounting information. Both organizations use the same procedure, but they only differ when it comes to area of jurisdiction. In this case, IFRS is used globally, whereas GAAP is only used by the American firms.

The only difference is the codification used by the two entitles. For example, IAS 1 in IFRS is the same as ASC 205 in the U.S GAAP (Greuning, Scott and Terblanche 28). Rules that are based on accounting standards internationally are accepted and applied all over the international accounting field.

On the other hand, principles based on accounting standards differ from one area of application to the other. Rules are common in all accounting environments and do not change. However, principles may change according to the preference of users and the concerned bodies (Walton, 37).

Convergence between U.S GAAP and IFRS

The IFRS refers to the statement of financial position after the completion of a fiscal year. On the other hand, U.S GAAP regards this as an income statement. The IFRS and US GAAP recognize the statement of cash flows for the period in a similar manner. Thus, there is a lot of comparison between U.S GAAP an IFRS with very little difference between them (Walton, 33).

The Accounting Standards Board (FASB) can be defined as an organization that develops the GAAP in the United States. The board has the mandate of improving the usefulness of accounting information and preparation. This is meant to create reliability in the accounting field. FASB also establishes clear accounting standards for use by firms in the United State. This is done by promoting international convergence to the quality of financial information (Delaney, 49).

The Securities Exchange Commission (SEC) is a commission in the United States checks how different accounting boards are operating. It also checks the function the Financial Accounting Standards Board (FASB) and gives it the mandate to develop GAAP. The likelihood of SEC requiring firms listed in the US to follow IFRS when preparing financial statements is very low (Walton, 37).

Works Cited

Delaney, Patrick R. Gaap: Interpretation and Application. New York: John Wiley, 1985. Print.

Flood, Joanne. Wiley Gaap 2013: Interpretation and Application of Generally Accepted Accounting Principles. New York: Wiley, 2012. Print.

Greuning, Hennie , D. Scott, and S. Terblanche. International Financial Reporting Standards: A Practical Guide. Washington, D.C: World Bank, 2011. Print.

Larkin, Richard F, and M. DiTommaso. Wiley Not-for-Profit Gaap 2012: Interpretation and Application of Generally Accepted Accounting Principles. Hoboken [N. J.: John Wiley & Sons, 2012. Print.

Walton, Peter J. An Executive’s Guide for Moving from U.S. Gaap to Ifrs. New York, NY: Business Expert Press, 2009. Print.