Accounting standards and principles Essay

In 1973, international method of accounting system receiveds committee issued international accounting standards (IAS) which lasted till 2000 when they were replaced by IFRS. These argon standard base conventions, accounting practices guidelines, interpretations and cloth adopted by the (IASB) (Epstein & Jermakowicz, 2010). In 2001, IASC was replaces by IASB which was man assured in knackting international accounting standards. The objective of IFRS is to choose companies pecuniary statements to reflect truth and fair ingest of companies affairs as at peculiar(prenominal) date (Epstein & Jermakowicz, 2010).Generally judge accounting standards ar principles and accounting guidelines recognised by a lendn territory, jurisdiction or most countries especially the unify States to appendage the role and objectives of IFRS. Financial statements should be recorded, summarized and recorded base on particular generally convections, rules, ethics and standards in a certain jurisdiction i. e. generally genuine accounting principles. Formulation of generally accepted accounting principles and IFRS For congruity and fairness in pecuniary statements which fortune point the commitance of a company, certain rules and standards must apply. chance upon much Satirical elements in the adventure of Huckleberry Finn attemptThese argon usually referred to as generally accepted and all accounting artals apply them as beguile and ethical. Failure to apply them in accounting welkin result to agreed penalty by every body governing the practice or the territory restraining u moolahhical practices to pros. Various committees and bodies atomic subprogram 18 put in places as restrainters which formulate and develop these accounting standards. outside(a) Financial account standards are developed and explicate by International Accounting Standards bill of fare spell Generally Accepted Accounting Principles are formulate by local financial reporting stan dards get along.In the United States, the establishment and growth are turnd by the United States Securities and Exchange Commission (SEC), the Statesn establish of Certified Public Accountants (AICPA), Financial Accounting Standards Board (FASB), and Government Accounting Standards Board (GASB) (Miller & Bahnson, 2002). All these bodies and committees take hold diverse roles and objectives which are agreed upon on influence to different accounting sectors profession generally accepted principles.International financial reporting standards are ground 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 contribute to the principles developed by IASB. empty responsibility in all technical matters that include preparation and issuing o f international financial reporting standards, are establish on the selected IASB (ISCF& IASB, 2007).Thus, the efforts of IASB involves, setting standards, formulating sue of adopting standards ensuring the learns of different countries in the globalizing accounting profession (Mwaura & Nyaboga, n. d). Difference between generally accepted accounting principles and IFRS generally accepted accounting principles and IFRS fill 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 information deep down a nation, the process is dictated by rules and convection of generally accepted accounting principles in the United Sta tes. International accounting standard board does not directly set or control provisions of rules and convections adopted by GAAP. Standards set by this powerful board are ground from agreements and suggestions from various local accounting boards e. g. Kenya accounting board (KAS). Various nations leave try to incorporate the set standards deep down 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 delusion to the local accounting boards. Various nations wealthy person make it compulsory for their accounting practice to adopt IFRS sooner than developing jurisdiction GAAP (Mwaura & Nyaboga, n. d). In addition, differences on the implementation 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 grapple calculations and development cost recognition in financial statement. For example, in United States, consolidated financial statements are prepared on risk and reward models bit international financial reporting standards prefers control establish model where consolidation is done on the percentage of control and influence in subsidiaries and associates (Forgeas, 2008).Risks and rewards is more compound since risk are subjective valued. Extraordinary items such as depreciation and amortization are include in the income statements under IFRS and in the US GAAP are accounted for after net income. This means marvellous expenses are not taken to contribute net profits (Forgeas, 2008). Under the US GAAP, companies have woof to use each last in first out OR first in first out methods of inventory valuation while in IFRS, LIFO method which is historical valuation method is recommended.When cipher for earning per share under IFRS average on interims calculations are not included whereas in the US GAAP, deliberation pick outs that individual interim increase in shares be done averagely (Forgeas, 2008). Capitalization on development intake is done under IFRS and recognized as strict 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 maestro sup lay 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 bas ed 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 a alike(p) procedures to financial statements summarizing, recording and presentation to the users bears a number of benefits to some(prenominal) the reporting entity and the user such as shareholder, lenders, creditors or the government taxation organ. Adoption of GAAP in the US and IFRS by other countries gives evidentiary economic and financial benefits to decision making. Both approaches give consistency in managing companies and it is easy to compare companies victimization 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 passel public GAAP and IFRS must be borrowed and they require all financial statements be subjected to an independent canvas and opinio n thereby be given on the applicability of standards in the company. These independent accountants (auditors) must accept 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 equal explanations and definitions to transactions, provide undeniable assumptions to these transaction and methods applied in either computations or accounting for the transaction.By this, companies are able to follow the requirements socio-economic class by year enhancing comparisons/benchmarks between companies and consistency in business operations. Valuation of various assets and liabilities both at the start and at the end of the year would be different between companies giving feverous time in comparison and auditing. These two standards call forth transparence and uniformity of valuation procedures of assets. For example, valuation of assets like investment and stocks unrealized profits can be am biguous 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 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 accordant application making statement user perform comparison of year by year and among competing companies.