ACCOUNTING
STANDARDS
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ACCOUNTING STANDARDS
CONTENT
Accounting Standard Definition
Accounting Standardization entities
Accounting International Standards
Differences between GAAP and IFRS
ACCOUNTING STANDARD
Accounting Standard
Definition
• An accounting standard is a common set of principles,
standards, and procedures that define the basis of financial
accounting policies and practices.
• An accounting standard is a set of practices and policies used
to systematize bookkeeping and other accounting functions
across firms and over time.
• Accounting standards apply to the full breadth of an entity’s
financial picture, including assets, liabilities, revenue,
expenses, and shareholders' equity.
• Banks, investors, and regulatory agencies count on
accounting standards to ensure information about a given
entity is relevant and accurate.
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ACCOUNTING
STANDARDIZATION
ENTITIES
1- International Accounting Standards
Board (IASB)
The IASB is an independent organization that develops and maintains
International Financial Reporting Standards (IFRS). The IASB is
responsible for setting accounting standards that are used in over 140
countries around the world
2- Financial Accounting Standards Board
(FASB)
The FASB is an independent organization that develops and maintains
Generally Accepted Accounting Principles (GAAP) in the United States.
The FASB is responsible for setting accounting standards that are used
by public and private companies in the US
3- International Federation of Accountants
(IFAC)
The IFAC is a global organization that represents the accounting
profession worldwide. The IFAC works to promote high-quality
accounting standards and ethical practices and provides guidance and
support to accounting professionals around the world
4- Accounting Standards Board (ASB)
The ASB is a standard-setting body in the United Kingdom that is
responsible for setting accounting standards for use by companies in
the UK and Ireland
ACCOUNTING STANDARD
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ACCOUNTING STANDARDS
ACCOUNTING
INTERNATIONAL
STANDARDS
Generally Accepted Accounting
Principles (GAAP)
Generally accepted accounting principles (GAAP) is the
accounting standard set by the Financial Accounting
Standards Board (FASB) for the Securities and
Exchange Commission (SEC) in the United States.
It’s a rule-based system that all domestic and Canadian
publicly traded companies must follow when filing
financial statements. The purpose of GAAP is to help
investors analyze financial data and compare different
companies to make informed financial decisions.
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International Financial Reporting
Standards (IFRS)
International Financial Reporting Standards (IFRS) are the
accounting standards set by the International
Accounting Standards Board (IASB).
It’s a set of guidelines followed by 15 of the G20
countries. China, India, and Indonesia do not follow IFRS
accounting standards but have similar standards, while
Japan allows companies to follow IFRS standards if they
choose.
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WHAT ARE THE
DIFFERENCES BETWEEN
GAAP AND IFRS?
While GAAP and IFRS both pertain to how financial documents are
structured and filed, there are significant differences. The two main
distinctions are:
• Enforcement
• Source and scope
GAAP vs IFRS?
ACCOUNTING STANDARD
SOURCE AND SCOPE ENFORCEMENT
GAAP is rule-based, meaning publicly GAAP is US-based, while IFRS is used
traded US companies are lawfully worldwide. The IASB, which sets
required to follow its directives. IFRS, is globally influential; its
IFRS is standard-based, meaning no accounting standards are adapted to
one is required to follow its accounting rules in countries
guideline—though it’s recommended. worldwide. The US, where the
As a result, the theoretical framework Securities and Exchange Commission
and principles of IFRS leave more requires American companies to use
room for interpretation and GAAP when preparing their financial
sometimes require lengthy statements, is the only exception.
disclosures on financial statements.
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What are the differences between
GAAP and IFRS?
There are other notable differences in how GAAP and IFRS handle
specific elements of various financial documents, including:
1. Inventory valuation methods
2. Cash flow statement
3. Balance sheet
4. Asset revaluation
5. Inventory write-down reversals
6. Development costs
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1. Inventory valuation methods
GAAP allows companies to use IFRS allows the FIFO and weighted
any of the three inventory average method but does not allow the
valuation methods. When using LIFO method, because LIFO can be
FIFO, GAAP uses “net asset manipulated to distort a company’s
value”—the total value of a earnings to lower tax liability. When
company’s assets minus the total using FIFO, IFRS uses “net realizable
value of its liabilities—to value,” which considers how much an
determine inventory valuation. asset might generate when sold, minus
an estimate of costs, fees, and taxes
associated with the sale.
GAAP IFRS
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2. Cash flow statement
Interest paid and received, and All interest and dividends can be listed
received dividends are listed under the operating or financing section.
under the operating section,
while dividends paid are listed in
the financing section.
GAAP IFRS
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3. Balance sheet
GAAP requires assets in order of IFRS suggests putting assets in the
liquidity, with the most liquid opposite order of liquidity, with the least
assets listed first—that is, current liquid assets listed first—that is, non-
assets, non-current assets, current assets, current assets, owners’
current liabilities, non-current equity, non-current liabilities, and
liabilities, and owners’ equity. current liabilities.
GAAP IFRS
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4. Asset revaluation
GAAP only allows the revaluation IFRS allows for the revaluation of more
of fair market value for assets, including plant, property, and
marketable securities (i.e., equipment (PPE), inventories, intangible
investments and stocks). assets, and investments in marketable
securities.
GAAP IFRS
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5. Inventory write-down reversals
require that businesses write require that businesses write down their
down their inventory as soon as inventory as soon as its cost exceeds its
its cost exceeds its net realizable net realizable value (i.e., how much the
value (i.e., how much the inventory is expected to generate when
inventory is expected to generate sold).
when sold). IFRS allows some assets to be evaluated
GAAP doesn’t allow companies up to their original price and adjusted
to re-evaluate the asset to its for depreciation.
original price in these cases
GAAP IFRS
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6. Development costs
GAAP considers these expenses FRS allows companies to capitalize and
amortize them over multiple periods.
GAAP IFRS
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ACCOUNTING STANDARD
Summary
GAAP stands for Generally Accepted Accounting
Principles, which are the generally accepted standards
for financial reporting in the United States. IFRS stands
for International Financial Reporting Standards, which
are a set of internationally accepted accounting
standards used by most of the world’s countries. The
key differences between GAAP and IFRS include:
• GAAP is a framework based on legal authority while
IFRS is based on a principles-based approach.
• GAAP is more detailed and prescriptive while IFRS
is more high-level and flexible.
• GAAP requires more disclosures while IFRS
requires fewer disclosures.
• GAAP is more focused on the historical cost of
assets while IFRS allows for more flexibility in the
valuation of assets.
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ACCOUNTING STANDARD
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