Over the past ten years, there has been a lot of progress in the United States concerning accounting standards. The Generally Accepted Accounting Principles overwhelm the International Financial Reporting. The world of economics is growing to be more independent. The professionals within the financial industry have begun to understand the governance of multinational organizations.
Definitions of GAAP
The Generally Accepted Accounting Principles (GAAP) involves a corporate set of accounting ideologies and procedures. These procedures guide various companies while compiling their financial statements. GAAP comprises an arrangement of authoritative standards, which are usually the accepted customs of recording and reporting accounting particulars.
The GAAP principles renew on periodical intervals to meet the current financial requirements. The principles ensure transparency and coherence in financial accounts. The central role of GAAP is to ensure that there is consistency when it comes to the preparation and dissemination of financial reports.
GAAP also makes it easy for the stakeholders to analyze and extract useful information about a company’s financial position. GAAP also simplifies the visualization and analysis of financial information across diverse companies.
Characteristics of GAAP
In GAAP, the financial report of any stock traded in the public must follow the rules set by the U.S. Securities and Exchange Commission. The characteristics of GAAP cover revenue, credit, balance sheet element classification, and outstanding share measurements. In case a business entity uses GAAP to make financial statements, the investors should take precaution. Apart from GAAP acquiescent measures, some firms also involve non-GAAP policies to record financial statements.
Definition of IFRS
IFRS refers to a set of international accounting standards authored by International Accounting Standards Board under the authority of the IFRS foundation. The IFRS shows how the financial and accounting connections as well other events should appear in the financial statements.
In every organization, the financial reports act as the guiding factors to the investors, and these reports help them to make precise decisions on their investment. Today, about 120 countries use IFRS as the primary structure to govern accounting statements. The IFRS harmonizes the standards to simplify the entire accounting process.
Characteristics of IFRS
The IFRS accounting election policy requires a change to enable some fair value in case of a fixed base. IFRS characteristics include transparency, accountability, and efficiency. The IFRS standards enhance the national comparability as well as the quality of corporate financial information.
The IFRS standards create accountability by decreasing the information gap between capital providers and the cash holders. In addition, the IFRS contributes to economic efficiency by helping the investors recognize opportunities and risks in the world, therefore refining capital allocation. On any financial reporting period, the comparative information shows information for the previous term, capturing the entire accounted amount in financial statements. The debt related to covenant violation is set as current.
Similarities between GAAP and IFRS
Similarities in Conceptual frameworks of GAAP and IFRS
The conceptual frameworks of both GAAP and IFRS are similar in structures. They both have similar ways of applying the accounting object elements and qualitative features.
Similarities in Statements of GAAP and IFRS
Both the GAAP and IFRS use the income statement and a balance sheet. In addition, they both use a statement of cash flows whenever handling cash equivalents.
Both the GAAP and IFRS formulate financial records on an accrued basis. This implies that all the revenue collected must needs accounting for to the organization.
The standards concept between GAAP and IFRS is similar regarding materiality and consistency. Their business entities consider the respective standards they use when creating the financial statements.
Every professional accounting body issues both the GAAP and IFRS and therefore many nations embrace them as accounting standards.
Main summary on similarities between GAAP and IFRS
The GAAP and IFRS meet into a set of high-quality international standard setters for accounting. As the two come together, they provide a custom of international standards that can easily direct accounting procedures in all the world.
The conceptual frameworks of both GAAP and IFRS methods are similar. They both formulate financial statements on an accrued basis. They both create income statement and a balance sheet. They both use the cash flows when dealing with cash. Regarding materiality and consistency, both GAAP and IFRS formulate monetary statements. They are both embraced in more than twenty countries in the world.