Generally accepted accounting principles, formally designated in the United States as GAAP, vary from country-to-country, and no universally accepted accounting recording and publishing system currently exists. The GAAP are a combination of procedures and standards utilized by a company when generating its financial statements. Both authoritative standards, determined by policy boards, and the most widely used and accepted means of writing and publishing accounting information are joined to create GAAP. These standards are required of companies so an investor can have some basic consistency among the financial statements of companies for comparison. Covered under the GAAP are such things as classification of items on the balance sheet, share measurements and recognition of revenue.
The international financial reporting standards, or IFRS, are a list of principles that address the way particular transactions, procedures and various events should be indicated in a company’s financial statements. These principle-based standards are put out by the London-based International Accounting Standards Board, or IASB, and are sometimes confused with the older international accounting standards, or IAS, which were replaced by the IFRS in 2000. These standards are used by the United Kingdom and member countries of the European Union, as well as a number of other countries.
Controversy has almost inevitably arisen when one country adopts another country’s accounting methods. Part of the reason it is so difficult to generate one set of universally accepted accounting standards is the basis on which the standards are set. The GAAP utilized in the U.S. are rules-based, while the IFRS are principles-based. The two differing fundamental approaches make it difficult to reconcile standard practices. Despite the difficulties posed, a basic, universally accepted means of documenting and publishing accounting information is sought on an ongoing basis.