Financial Statements - Setting and Enforcing Global Accounting Standards

What is the International Organization of Securities Commissions (IOSCO)

Although the IFRS and GAAP frameworks are different, they usually agree in the overall structure and principle and are working toward convergence. The two differ in the following ways:

• IFRS requires users to consider the general principles in the absence of specific standards.
• US GAAP distinguishes between objectives for business and non-business entities.
• The IASB framework gives more emphasis to the importance of the accrual and going concern assumptions than FASB
• GAAP framework establish a hierarchy of qualitative financial statement characteristics;
• Some differences in how each defines, recognizes, and measures individual elements of financial statements
• Companies reporting under standards other than GAAP that trade in USA must reconcile their statements with GAAP
.

The International Accounting Standard Board (IASB)
The IASB structure's main features are:

- the IASC Foundation - which is an independent organization whose two main bodies are the Trustees and the IASB
- a Standards Advisory Council
- the International Financial Reporting Interpretations Committee

The IASC Foundation Trustees appoint the IASB members, exercise oversight and raise the funds needed, but the IASB has sole responsibility for setting accounting standards. This organization was created to set international accounting standards in an effort to bridge the gap between the accounting standards of different nations.

U.S. GAAP versus IAS GAAP

Under U.S. GAAP, SFAS 95:
- Dividends paid by a company to its shareholders are classified on the cash flow statement under cash flow from financing.
- The dividends received by a company from its investments are classified as cash flow from operations.
- All interests received and paid by or to a company are classified as cash flow from operations.

Under IAS GAAP:
- Dividends paid by a company to its shareholders, dividends received by a company from its investments and all interests received and paid by or to a company can be classified as either cash flow from financing or cash flow from operations.

These rules are summarized in the following chart:

  U.S. GAAP IAS GAAP
Dividends paid by a company to shareholders Cash Flow from Financing Cash Flow from Financing or Operations
Dividends received by a company from investments Cash Flow from Operations Cash Flow from Financing or Operations
All interest received and paid by or to a company Cash Flow from Operations Cash Flow from Financing or Operations


Look Out!

It is highly likely you will need to calculate a figure on a cash flow statement according to one of the two rules.

Introduction
Related Articles
  1. Professionals

    Chinese Slowdown Affects Iron Ore Market

    The Chinese economy's ongoing slowdown is having a major impact on iron ore demand.
  2. Personal Finance

    Invest in Costco? First Understand Its Balance Sheet

    A strong balance sheet sets a company apart and boosts investor confidence. How healthy is Costco based on an analysis of its balance sheets from the last two years?
  3. Investing Basics

    Brokers and RIAs: One and the Same?

    Brokers and registered investment advisors have some key differences. Here's what you need to know.
  4. Professionals

    DCF Vs. Comparables: Which One To Use

    DCF and Comparables models are widely used in equity valuation. We explain the pros and cons of each method.
  5. Professionals

    How To Make Money Using Tobin's Q Ratio

    Although it seems simple, Tobin's Q Ratio is more complex than it appears. We explore some of its main strengths and weaknesses.
  6. Taxes

    3 Secrets You Didn't Know About Estate Planning

    Every advisor and saver needs to know these three estate planning secrets.
  7. Professionals

    Cash Flow Is King: How to Keep it Running

    Why is cash flow so important, and what steps can a business take to improve it?
  8. Entrepreneurship

    10 Ways to Nurse Cash Flow in Healthcare

    Running a business in healthcare? You might want to rethink cash flow management practices.
  9. Professionals

    How to Help Clients with Cash Flow Issues

    Sometimes your spending gets out of hand or income has a hiccup. Here's how financial advisors can help clients who have cash flow issues.
  10. Professionals

    How to Improve Your Cash Flow in Manufacturing

    Here are 10 ways to to improve a manufacturer's cash flow.
RELATED TERMS
  1. Personal Financial Advisor

    Professionals who help individuals manage their finances by providing ...
  2. CFA Institute

    Formerly known as the Association for Investment Management and ...
  3. Chartered Financial Analyst - CFA

    A professional designation given by the CFA Institute (formerly ...
  4. Security Analyst

    A financial professional who studies various industries and companies, ...
RELATED FAQS
  1. Can I use my IRA to pay for my college loans?

    If you are older than 59.5 and have been contributing to your IRA for more than five years, you may withdraw funds to pay ... Read Full Answer >>
  2. Can I use my 401(k) to pay for my college loans?

    If you are over 59.5, or separate from your plan-sponsoring employer after age 55, you are free to use your 401(k) to pay ... Read Full Answer >>
  3. What are the benefits of financial sampling?

    Financial sampling allows auditors to approximate the rate of error within financial statements. For accounting purposes, ... Read Full Answer >>
  4. What are the differences between a Chartered Financial Analyst (CFA) and a Certified ...

    The differences between a Chartered Financial Analyst (CFA) and a Certified Financial Planner (CFP) are many, but comes down ... Read Full Answer >>
  5. How do I become a Chartered Financial Analyst (CFA)?

    According to the CFA Institute, a person who holds a CFA charter is not a chartered financial analyst. The CFA Institute ... Read Full Answer >>
  6. What types of positions might a Chartered Financial Analyst (CFA) hold?

    The types of positions that a Chartered Financial Analyst (CFA) is likely to hold include any position that deals with large ... Read Full Answer >>
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!