Accounting standards and principles Essay Example for Free

Accounting standards and principles EssayIn 1973, worldwide bill system standards committee issued inter democracyal account standards (IAS) which lasted till 2000 when they were replaced by IFRS. These be standard found principles, accounting practices guidelines, interpretations and framework adopted by the (IASB) (Epstein Jermakowicz, 2010). In 2001, IASC was replaces by IASB which was dominanced in alignting international accounting standards. The objective of IFRS is to demand companies monetary narrations to ring truth and fair view of companies affairs as at item date (Epstein Jermakowicz, 2010).Generally trustworthy accounting standards are principles and accounting guidelines recognized by a given territory, jurisdiction or more or less countries especially the get together States to supplement the employment and objectives of IFRS. Financial statements should be presented, summarized and recorded based on particular in the main convections, rules, et hics and standards in a certain jurisdiction i. e. GAAP. Formulation of GAAP and IFRS For consistency and rectitude in pecuniary statements which detail the performance of a company, certain rules and standards must apply.See more satiric elements in the adventure of Huckleberry Finn essayThese are commonly referred to as generally accepted and all accounting victors apply them as appropriate and ethical. Failure to apply them in accounting field result to hold penalty by either body governing the practice or the territory restraining unethical practices to professionals. diverse committees and bodies are put in places as setters which formulate and develop these accounting standards. International Financial reporting standards are developed and formulated by International Accounting Standards Board while Generally reliable Accounting Principles are formulated by local pecuniary reporting standards board.In the United States, the memorial tablet and development are deviat ed by the United States Securities and Exchange Commission (SEC), American Institute of Certified in the public eye(predicate) Accountants (AICPA), Financial Accounting Standards Board (FASB), and Government Accounting Standards Board (GASB) (Miller Bahnson, 2002). All these bodies and committees have antithetical roles and objectives which are agreed upon on influence to different accounting sectors profession generally accepted principles.International financial reporting standards are based in International Accounting Standards which are accepted globally. ISA changed its operations in 2000 and IFRS were added to cope with the changing dynamics of global accounting profession. Through discussions, contributions and comparison agreements, different bodies through their representatives append to the principles developed by IASB. Complete responsibility in all technical matters that include preparation and number of international financial reporting standards, are based on the selected IASB (ISCF IASB, 2007).Thus, the efforts of IASB involves, setting standards, formulating solve of adopting standards ensuring the needs of different countries in the globalizing accounting profession (Mwaura Nyaboga, n. d). Difference between GAAP and IFRS GAAP and IFRS have variety in their jurisdiction of usage, enforcement and the way these standards are formulated. International financial reporting standards are globally recognized accounting standards, which are set by IASC from 1973 to 2001 and from 2001 by IASB. GAAP are accounting standards recognized as generally accepted by the United States.In summarizing, put down and presenting accounting information within a nation, the process is dictated by rules and convection of GAAP in the United States. International accounting standard board does non directly set or control provisions of rules and convections adopted by GAAP. Standards set by this unchewable board are based from agreements and suggestions from v arious local accounting boards e. g. Kenya accounting board (KAS). Various nations result try to incorporate the set standards within the GAAP in their country.FASB in America has a mandate to set accounting rules, convection and standards that are later adopted by the US GAAP (Mwaura Nyaboga, n. d). This means that the role of formulating and developing the rules and standards principally lie to the local accounting boards. Various nations have made it compulsory for their accounting practice to adopt IFRS rather than developing jurisdiction GAAP (Mwaura Nyaboga, n. d). In addition, differences on the implementation and saying exist in financial presentation between GAAP and IFRS.These differences are commonly in consolidation, statement of income format, inventory military rating and recognition, earning per share calculations and development cost recognition in financial statement. For example, in United States, consolidated financial statements are prepared on risk and rewar d models while international financial reporting standards prefers control based model where consolidation is done on the percentage of control and influence in subsidiaries and associates (Forgeas, 2008).Risks and rewards is more complicated since risk are subjective valued. Extraordinary items such as disparagement and amortization are included in the income statements infra IFRS and in the US GAAP are accounted for aft(prenominal) net income. This means extraordinary expenses are not taken to contribute net profits (Forgeas, 2008). below(a) the US GAAP, companies have option to use either LIFO OR FIFO methods of inventory valuation while in IFRS, LIFO method which is historical valuation method is recommended.When computing for earning per share under IFRS average on temporarys calculations are not included whereas in the US GAAP, computation requires that individual interim increase in shares be done averagely (Forgeas, 2008). Capitalization on development expenditure is do ne under IFRS and recognized as fixed asset while in the US GAAP capitalization is not done on development expenditure but is accounted for in income statement as expenses (Forgeas, 2008). Another difference between GAAP and IFRS is how movements are interpreted to mean. It is commonly argued that GAAP within a nation is rule based and IFRS is principle based.This means that transactions are interpreted based on the stated rules and standards. Ruled based interpretations lies with the professional judgment on certain transaction treatments in account. For principle based interpretation, the IFRS provide on more judgmental way to interpret transactions. This implies that principles are there to the interpretation of transaction and in rule based is on the professional judgment. The problems arise on whether judgment is accurate professional judgment or guessed professional judgment to transactions treatment (Forgeas, 2008). Benefits of GAAP and IFRSUses of standardized procedures t o financial statements summarizing, recording and presentation to the users bears a number of benefits to both the reporting entity and the user such as shareholder, lenders, creditors or the administration taxation organ. Adoption of GAAP in the US and IFRS by other countries gives significant economic and financial benefits to decision fashioning. both(prenominal) approaches give consistency in managing companies and it is easy to compare companies using the same standards. Both standards put strict measures on deviation from the rules and ethics in a particular standard.In around countries for a company to trade public GAAP and IFRS must be followed and they require all financial statements be subjected to an independent audit and opinion thereby be given on the applicability of standards in the company. These independent accountants (auditors) must certify financial statements and any notes to financial statement have been prepared and to be presented in accordance of either of the standard. These two provide adequate explanations and definitions to transactions, provide needed assumptions to these transaction and methods apply in either computations or accounting for the transaction.By this, companies are able to follow the requirements year by year enhancing comparisons/benchmarks between companies and consistency in business operations. Valuation of various assets and liabilities both at the deject and at the end of the year would be different between companies giving hectic time in comparison and auditing. These two standards enhance transparence and uniformity of valuation procedures of assets. For example, valuation of assets like investment and stocks unsuccessful profits can be ambiguous if such standards are not in place.Conclusion To make financial statement present a true and fairly performance and position of the business at a particular date, financial accounting standards are needed. High quality standards need to be set for reliable i nformation that is adequate and useful to investor or creditor. These high quality standards and enforcement will provide hydrofoil in business operations and promote full discloser to financial information which gives consistent application making statement user perform comparison of year by year and among competing companies.