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Accounting Standards
Guideline of financial accounting
In accordance to standards set by the IASB*
Specify when and how
accounting events are to be released
*International Accounting Standards Board
Relate to all aspects of an entity’s finances including assets, liabilities, revenue, expenditures and equity
Accounting Event
A transaction or change recognized on the financial statements of an accounting entity
An External transaction would occur with an outside party, such as the purchase or sales of a good.
An Internal transaction is for adjustment in the accounts of the financial statements
Great Depression
Financial Accounting Foundation (FAF)-- as the nation’s accounting standard-setting authority
AICPA and the New York Stock Exchange began to revise the financial reporting requirements
20th Century
Passage of the Securities Act of 1934 -- SEC to oversee accounting and auditing methods
1930
1934
1972
1973 Creation of Financial Accounting Standards Board (FASB)
Government Accounting Standards Board (GASB) was formed under the FAF
1974
Generally Accepted Accounting Principles (GAAP)
Stands for Generally Accepted Accounting Principles
They are the standard framework of guidelines for financial accounting
Include the standards, conventions, and rules that accountants follow in recording and summarizing and in the preparation of financial statements
Many businesses choose to opt out of GAAP practices as they operate on a cash basis, as opposed to an accrual basis
INTRODUCTION
Example:
Country GAAPChina Chinese Accounting Standards (Zhōngguó qǐyè kuàijì zhǔnzé 中国企业会计准则 )
Canada Generally Accepted Accounting Principles
France Generally Accepted Accounting Practice (Plan Comptable Général)
Germany Generally Accepted Accounting Practice (Grundsätze ordnungsmäßiger Buchführung)
India Generally Accepted Accounting Practice
Russia Generally Accepted Accounting Practice (RAP)
United Kingdom Generally Accepted Accounting Practice
United States Generally Accepted Accounting Principles
US Generally Accepted accounting principles (gaap)
IntroductionAdopted by the Securities and Exchange Commission (SEC)
Established by FASB
Represent objectives and guidelines for financial statements and reporting calculations
3 rules covered in GAAP:
oBasic accounting principles and guidelines
oDetailed standards of the FASB and APB
oGenerally accepted industry practices
Useful in making rational investment, credit, and other financial decisions
In assessing the amounts, timing, and uncertainty of prospective cash receipts about economic resources, the claims to those resources, and the changes in them
Make financial decisions
Make long-term decisions
Improve the performance of the business
Maintain records
GAAP
4 Assumptions
4 Principles 4 Constraints
Business Entity
Going Concern
Monetary Unit
Periodicity
Assumptions
Historical Cost Principle
Revenue Recognition
PrincipleMatching Principle
Full Disclosure Principle
Principles
Objectivity Principle
Materiality Principle
Consistency Principle
Conservatism Principle
Constraints
International Financial Reporting Standards (IFRS)
IntroductionSet of international accounting standards
Established in 2001
State how particular types of transactions and other events should be reported in financial statements
Issued by the International Accounting Standards Board (IASB)
Established to have a common accounting language, so business and accounts can be understood from company to company and country to country
Objective
Maintain stability and transparency throughout the financial world
Why use IFRS?
Who follows IFRS?
Save money on alternative comparison costs and individual investigationsAllow information to flow more freely
About 120 countries use IFRS in some way, and 90 of those require them and fully conform to IFRS regulations
Std No. Title Description
IFRS 1 First-time Adoption of IFRSSets out the procedures that an entity must follow when it adopts
IFRSs for the first time
IFRS 2 Share-based paymentRequires an entity to recognize
share-based payment transactions in its financial statements
IFRS 3 Business CombinationsOutlines the accounting when an
acquirer obtains control of a business
IFRS 4 Insurance ContractsApplies to all insurance contracts
that an entity issues and to reinsurance contracts that it holds
IFRS 5 Non-current Assets held for Sale and Discontinued Operations
Outlines how to account for non-current assets held for sale
IFRS Reporting standards
Std No. Title Description
IFRS 6Exploration for and
Evaluation of Mineral Resources
Has the effect of allowing entities adopting the standard for the first time to use accounting
policies for exploration and evaluation assets that were applied before adopting IFRSs
IFRS 7 Financial Instruments: Disclosures
Requires disclosure of information about the significance of financial instruments to an entity, and the nature and extent of risks arising from
those financial instruments, both in qualitative and quantitative terms
IFRS 8 Operating Segments
Requires particular classes of entities to disclose information about their operating segments,
products and services, the geographical areas in which they operate, and their major customers
IFRS 9 Financial InstrumentsIncludes requirements for recognition and
measurement, impairment, de recognition and general hedge accounting
Std No. Title Description
IFRS 10 Consolidated Financial Statements
Outlines the requirements for the preparation and presentation of consolidated financial statements, requiring entities to consolidate entities it controls
IFRS 11 Joint Arrangements Outlines the accounting by entities that jointly control an arrangement
IFRS 12Disclosure of
Interests in other Entities
A consolidated disclosure standard requiring a wide range of disclosures about an entity's
interests in subsidiaries, joint arrangements, associates and unconsolidated structured entities
IFRS 13 Fair Value Measurement
Applies to IFRSs that require or permit fair value measurements or disclosures and provides a
single IFRS framework for measuring fair value and requires disclosures about fair value
measurement
Std No. Title Description
IFRS 14 Regulatory Deferral Accounts
Permits an entity which is a first-time adopter of International Financial Reporting Standards to
continue to account, with some limited changes, for 'regulatory deferral account balances' in
accordance with its previous GAAP, both on initial adoption of IFRS and in subsequent financial
statements
IFRS 15Revenue from Contracts with
Customers
Specifies how and when an IFRS reporter will recognize revenue as well as requiring such
entities to provide users of financial statements with more informative, relevant disclosures
IFRS 16 Leases Specifies how an IFRS reporter will recognize, measure, present and disclose leases
Difference between IFRS and GAAP
GAAP IFRS
Stands for Generally Accepted Accounting Principles International Financial Reporting Standards
Introduction
Standard guidelines and structure for typical financial
accounting
Universal financial accounting method that lets international businesses to understand
each other and work together
Used in United States Around 120 countries, including the European Union
Required documents in financial statements
Balance sheet, income statement, statement
of comprehensive income, changes in
equity, cash flow statement, footnotes
Balance sheet, income statement, changes in equity, cash flow statement, footnotes
Definition of an asset
The U.S. GAAP framework defines an
asset as a future economic benefit
The IFRS framework defines an asset as a resource from which future economic
benefit will flow to the company
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