accounting standards (1)

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


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


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


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

accounting standards (1)

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