Accounting Standard

MoneyBestPal Team
A set of rules and guidelines that define how financial information should be reported and disclosed by entities.

An accounting standard is a set of rules and recommendations that specify how companies should record and disclose financial information.

For financial statements to be accurate, comparable, and reliable, accounting standards are necessary. Additionally, they support users of financial data in developing thoughtful judgments and decisions.

There are different accounting standards in different countries and regions. Some of the most widely used accounting standards are:
  • Generally Accepted Accounting Principles (GAAP): These are the accounting principles that American organizations adhere to. The Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB) are the organizations that issue GAAP (GASB). Revenue recognition, asset valuation, depreciation schedules, lease accounting, and earnings per share are only a few of the issues covered by GAAP.
  • International Financial Reporting Standards (IFRS): These are the international accounting standards that are used by organizations in more than 140 nations. The International Accounting Standards Board (IASB) publishes IFRS with the goal of unifying accounting standards around the world. Similar subjects are covered by IFRS and GAAP, however, they may have distinct requirements or interpretations.
  • International Accounting Standards (IAS): They served as the basis for IFRS prior to 2001 and were published by the International Accounting Standards Committee (IASC). The IASB has adopted or modified several of the IAS, some of which are still in use. IAS 12 Income Taxes, IAS 2 Inventory, and IAS 1 Presentation of Financial Accounts are a few examples of IAS.
The accounting standard that an entity chooses may have an impact on how it reports its financial performance and position. For instance, a corporation might categorize some leases as operational leases under IFRS and include them as expenses in the income statement, whereas, under GAAP, the same leases might be categorized as capital leases and include them as assets and liabilities in the balance sheet. Similar to how a company can measure its property, plant, and equipment under GAAP using the cost model and at fair value under IFRS, an entity can do the same under IFRS.

Users of financial information should therefore be aware of how an entity's financial statements are impacted by the accounting standards it uses. Users should be aware of how various accounting standards differ from one another as well as how this may affect how they analyze and compare financial data.