Students who are considering a career in accounting and are researching on the subject or those who read news a lot often come across the words GAAP, IFRS etc., GAAP and IFRS are international Accounting Principles that provide Accounting Standards for businesses to follow.
What are Accounting Standards?
An Accounting Standard is a guideline that directs and standardizes accounting practices. Accounting standards provide a standardized framework to ensure that the financial statements of businesses are meaningful and standardized so that interpreting and understanding them would be easy.
A set of standards compiled together are called principles. Businesses are typically mandated to follow a set of accounting standards which are either specific to the country or internationally accepted ones like IFRS, or the GAAP.
Why use accounting standards?
Accounting standards ensure that the financial statements are prepared fairly and consistently across the businesses. Without accounting standards, users of financial statements would be required to understand the accounting principles of each company whose financial statements are under study.
Each publicly traded company in a particular jurisdiction is required to report their financial statements following the accounting standards adopted by them.
IFRS accounting standards:
IFRS stands for International Financial Reporting Standards, initially called International Accounting Standards (IAS) they are designed to serve as a common language for business affairs. With globalization, the world has become the local market place and to facilitate this adopting a uniform accounting standard was important.
IFRS began as an effort to standardize accounting across the European Union but the value of standardization quickly made the concept attractive around the world. IFRS as IAS were first issued by the Board of the International Accounting Standards Committee (IASC) between 1973 and 2001. On 1 April 2001, the new International Accounting Standards Board (IASB) took over from the IASC the responsibility for setting International Accounting Standards. During its first meeting the new Board adopted existing IAS and Standing Interpretations Committee standards (SICs). The IASB has continued to develop standards calling the new standards “International Financial Reporting Standards”.