All businesses work on some principles to drive their organization on a pre-planned track that will deem effective in the end. Whether we talk about human resource, management, taxation, finance, accounting or any other function of the business, working with some principles provides for a clear direction and support in achieving the business goals.
Are you a booming business? But you are not clear about the accounting body you want to follow when preparing your financial statements? Then this article will be your guideline towards making an informed choice.
Two major accounting standards are followed in the United States.
US GAAP
The accounting standards used commonly in the US are known as US GAAP (Generally Accepted Accounting Principles) formulated by the FASB (Financial Accounting Standards Board) for governing of the financial reports of non-governmental organizations. There is also the AICPA (American Institute of Certified Public Accountants) who is responsible for developing the standards used in auditing private company’s financial statements.
US GAAP outlines the principles for maintaining the records of inventory valuation, short and long-term investments, taxation and every other component of financial reporting. The guidelines issued by GAAP educate on how to record accounting information properly, in a consistent and fair manner.
Although no company is required to follow these guidelines but large companies, do follow these to provide consistency when comparing organizational statements. Even investors look for proper financial statements that will give them the fair picture of the organization that can be trusted upon, is consistent, reliable, comparable, and relevant in disclosing the right information.
IFRS
This abbreviation refers to International Financial Reporting Standards by the IASB (International Accounting Standards Board). Previously these standards were also known as the IAS (International Accounting Standards) issued by the IASC (International Accounting Standards Committee). People still know the standards as IAS rather than IFRS but the principles are same.
IFRS’s are designed for the goal of communicating with the world through a common language of accounts in business that is comprehensible and comparable. IFRS’s have greatly benefited the international trade and overseas shareholding practices. These accounting standards are making progress across boundaries and becoming increasingly successful in replacing the national accounting standards.
Some general features of IFRS are:
- Fair Presentation & Compliance
This refers to the faithful representation of transactions considering several events, conditions and respective definitions of components of financial statements.
- Going Concern
Financial statements should be prepared to show the organization is in operation and should not be produced if management intends to liquidate.
- Accrual Basis of Accounting
Assets, expenses, income, liabilities and equity should satisfy recognition criteria present in the IFRS framework.
- Materiality & Aggregation
Every distinct item should be read separately unless immaterial. Similar items should be shown as one.
- Offsetting
Although forbidden, some standards require this when explicit conditions are fulfilled.
Frequency of Reporting
IFRS guides to prepare financial statements at least annually although listed companies are required to publish provisional financial statements.
- Comparative Information
As IFRS’s are globally adopted, information should be relevant, narrative, descriptive and comparable with the preceding periods.
- Consistency of Presentation
Classification of financial statement items should be consistent from one period to next, to make it understandable and easily reviewable.
SK Financial is a Tampa based company that can help you with preparing your financial statements by adopting the accounting principles you reckon necessary for your business.
