Introduction, Review of Accounting Process and Financial Statements

TUI UNIVERSITY

Module 1 Case

ACC403 Principles of Accounting

PART 1

US GAAP

The US Generally Accepted Accounting Principles set standards by which all independently prepared financial statement can be measured.  The standards are purposely general in nature because it would be impossible to state rules for each type of financial situation.  Some industry standards are more easily defined: such as the size of shoes or wattage of light bulbs.  GAAP, on the other hand, tries to provide a framework for accountants to use in preparing financial statements.

The importance of having standards is that stakeholders of all kinds can assess and compare the financial statements to other companies in the industry or in the markets.  Stakeholders may include shareholders, bankers, lenders, investors, financial analysts, potential buyers and sellers of stock or of companies, and anyone else who has an interest in a company with a published financial statement.  Another class of stakeholders is those involved in enforcement: the IRS, the SEC, the FBI, the EPA and any number of similar agencies.

IFRS

The International Financial Reporting Standards (IFRS) are the resultant board to set

standards of financial reporting for over 100 countries in the world.  Formally, they were called the International Accounting Standards (IAS).  The standards were developed over a period of time beginning in 1973, but in 2001, the new International Accounting Standards Board (IASB) became the recognized agency for international accounting standards.   As is US GAAP, the standards are ‘principles based’ rather than ‘rules based’, as discussed above.  Although there are differences in concept and presentation, the two sets of standards are very similar.  An ongoing project for the IASB is to work toward a convergence with US GAAP.  The differences are slowly being compromised and hopefully, the two will be identical within a very few years.  January 1, 2011 is a projected date...