This tutorial will cover governing principles in accounting, as well as the range of governing bodies
involved in regulating accounting practices.
Our
... [Show More] discussion breaks down as follows:
1. Governing Principles
2. Governing Bodies
3. Federal Agencies
1. Governing Principles
Let's begin by discussing governing principles in accounting, specifically GAAP and IFRS, exploring what they
are and the differences between them.
Generally Accepted Accounting Principles
(GAAP)
International Financial Reporting Standards
(IFRS)
Who it
applies to
Represents the accounting standards for U.S.
companies. Publicly traded U.S. companies are
required to use U.S. GAAP; many privately held
companies, although not required to use it, still do.
Represents the accounting standards for all
international companies. This means that if
you are doing business in any countries
outside of the U.S., you would use IFRS.
Objectives Help financial statements achieve three things:
*Relevance. Is the information relevant to the
message we are trying to send through our
financial statements?
*Reliability. Can we rely on the information?
*Comparability. Can we compare the financial
statements of two different entities?
Standardize the accounting procedures
across all nations.
Now, the U.S. has tried to get somewhat involved, although, as mentioned, U.S. GAAP exists in the United
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States and all publicly traded U.S. companies must use it. However, any non-publicly traded companies--
meaning non-SEC registrants--can use either U.S. GAAP or IFRS for non-U.S. SEC registrants.
2. Governing Bodies
Next, we will discuss some of the governing bodies that play a role in this principle setting process. There are
quite a few, and they help to create and modify accounting principles, provide guidance, and even enforce
rules and regulations. The first group to cover includes the AICPA, the GASB, and the FASB:
American Institute of Certified
Public Accountants (AICPA)
Governmental Accounting
Standards Board (GASB)
Financial Accounting Standards
Board (FASB)
Established in 1887
It is the main professional
association for CPAs and
develops additional guides that
assist them when they are
implementing U.S. GAAP.
Established in 1984
This board is in place to develop
standards of financial reporting for
state as well as local governments.
Established in 1973
Likely the most important governing
body in this group. They have a
critical role relating in developing
U.S. GAAP. The FASB develops new
standards and controls the
implementation of previous
standards, as well as new standards
that are coming ou [Show Less]