What is Meaning and difference between GAAP and IFRS ? Short Note

Accounting Standards

Concept and Objectives

The accounting principles or GAAP in the from of concepts and convention have been developed to bring comparability and uniformity in the financial statements. But GAAP also allow a large number of alternative treatments for the same item. Different organizations may adopt different accounting policies for the same transaction or an organization may follow different accounting policies for the same item over different accounting periods. As a result, the financial statements become inconsistence and incomparable.

So it was felt that certain minimum standards should be universally applicable, so that the accounting statements have the qualitative characteristics of realiability, relevance, understandability and comparability.

International Accounting Standard Committee (lASC) was set up in 1973. (now renamed as international Financial Reporting committee IFRC). The Institute of Chartered Accountants of in di (ICAl) and the Institute of Cost and Works Accountants of India are members of this committee. ICAl set up the Accounting Standar oard (ASB) in 1997 to identify the areas in which uniformity in accounting is required. ASB prepares and submits a draft accounting standard to the council of ICAl. The council of ICAI issues the draft for the comments to the govt., industry and professionals etc. After due consideration on comments received, the council of ICAl notifies it for its use in financial statements.

Concept of Accounting Standards

Accounting Standard are written statements, issued from time- to-time by institutions of accounting professionals, specifying uniform rules or practices for drawing the financial statements.

Objectives of Accounting Standards 

1. Accounting standards are required to bring uniformity in accounting practices and policies by proposing standard treatment in preparation of financial statements

2. To improve realiábility of the financial statement: Accounts prepared by using accounting standards are reliable for various users, because these standards create a sense of confidence among the users.

3. To prevent frauds and manipulation by codifying the accounting methods and practices

4. To help Auditors: Accounting Standards provide uniformity in accounting practices, so it helps auditors to audit the books of accounts.

IFRS (International Financial Reporting Standards)

This term refers to the financial standards issued by International Accounting Standards Board (IASB). It is the process of improving the financial reporting internationally to help participants in various capital markets of the world and otherusers.

IFRS based financial statements

Following financial statement are produced under IFRS:

1. Statement of financial position: The element of this statement are (a) Assets (b) liability (c) Equity

2. Comprehensive income statement: The elements of the statement are
(a) Revenue (c) Equity (b) Expense

3. Statement of changes in equity.

4. Statement of cash flow.

5. Notes and significant accounting policies.

Main difference between IFRS and IAS (Indian accounting standards)

1. IFRS are principle based while IAS are rule based.

2. IFRS are based on fair value while IAS are based on historical cost.