A:

To answer this question, we must first define what IAS and GAAP are, in order to get a better grasp of the function they serve in the world of accounting.

The acronym "IAS" stands for International Accounting Standards. This is a set of accounting standards set by the International Accounting Standards Committee (IASC), located in London, England. The IASC has a number of different bodies, the main one being the International Accounting Standards Board (IASB), which is the standard-setting body of the IASC. The acronym "GAAP" stands for Generally Accepted Accounting Principles.

The IASC does not set GAAP, nor does it have any legal authority over GAAP. The IASC can be thought of as merely a very influential group of people who love making up accounting rules. However, a lot of people actually do listen to what the IASC and IASB have to say on matters of accounting.

When the IASB sets a brand new accounting standard, a number of countries tend to adopt the standard, or at least interpret it, and fit it into their individual country's accounting standards. These standards, as set by each particular country's accounting standards board, will in turn influence what becomes GAAP for each particular country. For example, in the United States, the Financial Accounting Standards Board (FASB) makes up the rules and regulations which become GAAP.

The best way to think of GAAP is as a set of rules that accountants follow. Each country has its own GAAP, but on the whole, there aren't many differences between countries - interpretations might vary from country to country, but everyone tends to agree that a company can't simply make up billions of dollars worth of revenue and put it on its books. Every country, in turn, influences the other countries that follow GAAP.

For more information on GAAP and its effect on financial statements in the United States, check out our Advanced Financial Statement Analysis Tutorial.

RELATED FAQS

  1. How is minimum transfer price calculated?

    Discover how to calculate the minimum transfer price for goods and materials that have been transferred between multiple ...
  2. What Book Value Of Equity Per Share (BVPS) ratio indicates a buy signal?

    Find out more about book value of equity per share, what BVPS measures and how to determine what level of BVPS indicates ...
  3. What is the effective interest method of amortization?

    Find out more about the effective interest rate method and how the effective interest method is used to amortize a discounted ...
  4. What does an unfavorable variance indicate to management?

    Learn what an unfavorable variance indicates to management, such as problems with meeting expense and revenue targets or ...
RELATED TERMS
  1. Chart Of Accounts

    A listing of each account a company owns, along with the account ...
  2. Operating Cost

    Expenses associated with administering a business on a day to ...
  3. Convention Statement

    A document filed by an insurance or reinsurance company that ...
  4. Capital Expenditure (CAPEX)

    Funds used by a company to acquire or upgrade physical assets ...
  5. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative ...
  6. Accident Year Experience

    Premiums earned and losses incurred during a specific period ...

You May Also Like

Related Articles
  1. Investing Basics

    What Happened To Rite Aid Stock In 1999?

  2. Fundamental Analysis

    Why Last In First Out Is Banned Under ...

  3. Budgeting

    Quickbooks vs. Quicken

  4. Fundamental Analysis

    The Best 5 Online Accounting Systems ...

  5. Investing Basics

    How To Calculate Goodwill

Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!