Accounting standards and principles Essay

In 1973, external invoice standards committee issued international method of story standards (IAS) which lasted till 2000 when they were replaced by IFRS. These argon standard base principles, account practices guidelines, interpretations and fashion imitate driveed by the (IASB) (Epstein & Jermakowicz, 2010). In 2001, IASC was replaces by IASB which was mandated in context international accounting standards. The objective of IFRS is to make companies fiscal statements to reflect truth and sensible view of companies affairs as at detail date (Epstein & Jermakowicz, 2010). nearly original accounting standards atomic number 18 principles and accounting guidelines know by a given territory, legal power or most countries especially the unite States to add on the role and objectives of IFRS. fiscal statements should be presented, summarized and recorded based on particular generally convections, rules, ethics and standards in a certain jurisdiction i. e. generally accepte d accounting principles. formula of generally accepted accounting principles and IFRS For consistency and fairness in financial statements which detail the surgical process of a company, certain rules and standards must sustain.See more Satirical elements in the adventure of Huckleberry Finn essayThese argon commonly referred to as generally accepted and all accounting master keys apply them as appropriate and ethical. Failure to apply them in accounting field result to agreed penalty by every body governing the practice or the territory restraining unethical practices to professionals. Various committees and bodies are put in places as rigidters which formulate and direct these accounting standards. world(prenominal) Financial inform standards are developed and develop by International Accounting Standards Board while Generally original Accounting Principles are formulated by local financial report standards board.In the linked States, the establishment and development are influenced by the United States Securities and Exchange Commission (SEC), American Institute of Certified Public Accountants (AICPA), Financial Accounting Standards Board (FASB), and Government Accounting Standards Board (GASB) (Miller & Bahnson, 2002). All these bodies and committees permit different 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 trading operations in 2000 and IFRS were added to cope with the changing dynamics of global accounting profession. by discussions, contri justions and comparison agreements, different bodies through their representatives contribute to the principles developed by IASB. execute responsibility in all technical matters that include preparation and egress of international financial reporting standards, are based on the selected IASB (ISCF& IASB, 2007).Thus, the efforts of IASB involves, setting standards, formulating process of adopting standards ensuring the needs of different countries in the globalizing accounting profession (Mwaura & Nyaboga, n. d). residue between generally accepted accounting principles and IFRS generally accepted accounting principles and IFRS perk up difference 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. generally accepted accounting principles are accounting standards recognized as generally accepted by the United States.In summarizing, recording and presenting accounting selective information in spite of appearance a nation, the process is dictated by rules and convection of GAAP in the United States. International accounting standard board does not directly set or control provisions of rules and convections adopted by GAAP. Standards set by this correctly board are based from agreements and suggestions from various local accounting boards e. g. Kenya accounting board (KAS). Various nations will 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 office 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 capital punishment and formulation exist in financial presentation between GAAP and IFRS.These differences are commonly in consolidation, statement of income format, inventory valuation and recognition, earning per parcel out calculations a nd development cost recognition in financial statement. For example, in United States, consolidated financial statements are prepared on risk and recognize models while international financial reporting standards prefers control based model where consolidation is make 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 much(prenominal) as depreciation and amortization are included in the income statements beneath IFRS and in the US GAAP are accounted for after net income. This means extraordinary expenses are not taken to contribute net lolly (Forgeas, 2008). Under the US GAAP, companies have option to use either last in first out OR FIFO methods of inventory valuation while in IFRS, last in first out method which is historical valuation method is recommended.When computing for earning per share nether IFRS average on interims calculations are not inc luded whereas in the US GAAP, computation requires that individual interim increase in shares be done averagely (Forgeas, 2008). Capitalization on development expenditure is done 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 transactions 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 discernment on certain transaction treatments in account. For principle based interpretation, the IFRS get out 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 whe ther judgment is accurate professional judgment or guessed professional judgment to transactions treatment (Forgeas, 2008). Benefits of GAAP and IFRSUses of standardise procedures to 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 government taxation organ. sufferance of GAAP in the US and IFRS by other countries gives significant scotch and financial benefits to decision making. Both approaches give consistency in managing companies and it is slow to compare companies using the same standards. Both standards put strict measures on deviation from the rules and ethics in a particular standard.In most countries for a company to trade public GAAP and IFRS must be followed and they require all financial statements be subjected to an free-living audit and look thereby be given on the applicability of standards in the company. These independen t 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 give adequate explanations and definitions to transactions, provide needed assumptions to these transaction and methods applied in either computations or accounting for the transaction.By this, companies are able to follow the requirements form by course enhancing comparisons/benchmarks between companies and consistency in business operations. evaluation of various assets and liabilities both at the start 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 unrealized profits can be indeterminate if such standards are not in place.Conclusion To make financial statement present a true and fa irly get alongance and sight of the business at a particular date, financial accounting standards are needed. High quality standards need to be set for reliable information that is adequate and useful to investor or creditor. These high quality standards and enforcement will provide transparency 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.