Understanding Accounting and Financial Reporting Systems across the World

The International Accounting Standards Board (IASB) and Financial Accounting Standards Board (FASB) set accounting standards for financial reporting, aiming to improve transparency, reliability, and understanding. The IFRSs developed by IASB include 57 accounting standards, while FASB's GAAP guidelines are used internationally. Accounting standards can be classified into disclosure, presentation, and content standards. The benefits of accounting standards include improved reliability and credibility of financial statements, beneficial for accountants and auditors, facilitates comparison and conflict resolution, and helps with regulatory compliance. However, limitations include restrictions on companies' choices, inability to override statue, and potential controversies.

BLOG: ACCOUNTING STANDARDS
WHAT ARE DIFFERENT ACCOUNTING
STANDARDS AROUND THE WORLD?

ACCOUNTING STANDARDS
8th August 2019
The need to have a specific set of accounting standards is increased by globalisation. The users
of financial statements around the world are working in order to establish a common set of
accounting standards that could be applied by companies operating globally. Till date the efforts
to formulate a set of globally applicable accounting standards yet not become fruitful. The
procedure of developing a universal set of accounting standards receive conflicting views and
opinions from different nations that have restricted the path of developing a set of accounting
standards that could be applied by all companies across the world. Some nations support the step
of implementing a single and worldwide applicable set of accounting standards, and as a result of
this, the maximum number of nations that support the development of a worldwide accepted set
of accounting standards have started embracing IFRS (International Financial Reporting
Standards) issued by IASB (International Accounting Standards Board).
Some nations are still using their national GAAP (Generally Accepted Accounting Principles)
standards because they believe that adopting another accounting standard might cause various
complexities and complications as well as undermine the nation's sovereignty. Due to this
reason, some countries still support to keep a different set of accounting standards at the national
level that are formulated by considering the countries' laws, regulation related to trade which is
distinct from other countries. The act of implementing a single set of accounting standards leads
to simplification. There are a number of companies that operates through different business lines
and many subsidiaries. These companies tend to consolidate their financial reports for providing
a comprehensive financial report on their overall corporate performance. Here, if a business
organisation is needed to apply and abide by a different set of accounting standards, then it
becomes very challenging to consolidate its business reports.
The elements that are represented in a different manner in various financial statements make it
tough to merge the financial report. In addition to this, the use of different currencies like
pounds, dollars, and yens make it very difficult to consolidate financial reports. A set of global
accounting standards needs to be formulated to simplify the accounting process as well as to

enable multinational companies to merge their annual financial statements with ease. However,
the current situation is different because global accounting standards are yet not been prepared
and some nations still following their own set of accounting standards due to which there are two
different sets of accounting standards are prevailing.
Definition and Discussion on Accounting Standard
Accounting standard refers to a set of procedures, principles, and standards that are common and
defined on the basis of practices and policies in relation to financial accounting. Accounting
standards are developed with the aim of improving the transparency and consistency of financial
reporting of companies operating from all the different countries across the world. Accounting
standards use to relate to every aspect of a company's finances which include assets, liabilities,
expenses, revenue, and shareholders' equity. Some of the specific examples of accounting
standards include asset classification, revenue recognition, allowable or accepted methods for
amortisation, depreciation, what is treated depreciable, measurement of outstanding shares, and
lease classifications. These standards use to apply to the full breadth of a company's financial
picture. Banks, regulatory agencies, and investors count on the accounting standards for ensuring
the accuracy and relevancy of a company's financial information and data.
Accounting standards means some written policy documents that are issued by expert accounting
bodies or by a country's government or by any other regulatory body in order to cover the aspects
associated with recognition, treatment, measurement, presentation, as well as disclosure of
financial transactions in different financial statements. The companies operating internationally
use to follow IFRS (International Financial Reporting Standards) that are formulated by the
IASB. These standards provide a guideline for the companies that follow Non-U.S. GAAP for
reporting their annual financial statements. In the US, GAAP (Generally Accepted Accounting
Principles) is stands as the set of accounting standards which is widely accepted by the US based
companies while preparing their periodic financial statements. GAAP encompasses the details,
legalities, and complexities of corporate and business accounting. GAAP is used by FASB as the
base for its comprehensive set of approved accounting practices and methods.

While the US based public companies are currently needed to follow the GAAP standards at the
time of filing their periodic financial statements, the private companies of the country are still
allowed to choose the standards system they prefer. This might change soon depending on the
upcoming decisions from the Securities Exchange Commission (SEC) that has been discussing
whether to step-out with recommending the global standards of accounting, either completely or
partially. According to the Bloomberg BNA, James Schnurr, the Chief Accountant of SEC, the
IFRS are supplemental-reporting approach and this would be treated as a simple alternative to
the complete adoption of accounting standards that are issued by IASB. Till date, IFRS standards
are not widely accepted in the US. Still, the IASB and FASB are working together to agree on as
well as to set accounting standards that could be applied both nationally and internationally. At
present, there are two sets of accounting standards one is GAAP (followed by the public
companies of the US) formulated by FASB, and the other one is IFRS (a set of worldwide
accepted accounting standards) formulated by IASB.
Accounting standards are developed by IASB and FASB with to assist companies in dealing with
the four major accounting issues, namely
 The recognition of corporate level financial events
 Measurement of the business transactions that are financial in nature
 Presentation of periodic financial statements in a true and fair manner
 Disclosure requirements of companies for ensuring their stakeholders that they are
properly informed.
History of Accounting Standards and their Purpose
In 1930, the American Institute of Accountants, currently popular as the American Institute of
Certified Public Accountants, in collaboration with the NSCE (New York Stock Exchange)
attempted to represent the accounting standards first. Following such attempt of AICPA and
NSCE, in 1933, the Securities Act and in 1934, the Securities Exchange Act was developed by
the SEC (Securities and Exchange Commission). At that time, accounting standards were also
established by the Accounting Standards Board of the US Government for setting accounting

principles and standards for every state as well as local governments. Accounting standards use
to specify the time and the way all the events that economic in nature are required to be
recognised, measured, and then displayed.
Entities like banks, regulatory agencies, and investors rely on the accounting standards for
ensuring relevance and accuracy of the information provides by entities about their financial
performance. These types of technical pronouncements in the US have ensured the transparency
in financial reporting along with having set the limits or boundaries for the measures required to
be used by entities in their practices related to financial reporting. In 1973, on the basis of the
recommendation made by the AICPA, the Financial Accounting Standard Board was established
as independently operated accounting standards setting board. It was formed to take over the
determinations as well as the updates of GAAP. FASB, till date, is entirely responsible for the
Accounting Standards Codification which is a centralised resource where the US based
accountants use to find every current GAAP.
U.S. GAAP - Accounting Standards
The first set of accounting standards was developed, managed as well as by AICPA. In 1973, all
the responsibilities of AICPA were transferred to the newly formed FASB. An independent non-
profit organisation, FASB has the power to establish as well as interpret GAAP in the US for
publicly and privately operated companies along with non-profit organisations. GAAP refers to a
set of accounting standards representing how both profit and non-profits making companies, and
governments need to prepare and then present their individual financial statements. The SEC
requires every listed (listed on the US securities exchange) companies operating in the US to
adhere to the accounting standards titled U.S. GAAP while preparing their periodic financial
statements. Accounting standards use to ensure comparability of periodic financial statements of
multiple companies. The comparability between the financial statements of multiple companies
was ensured because ensured all companies follow the same set of rules, guidelines, and
accounting standards while preparing their financial statements which made these statements
credible. Such comparability of financial statements also allows more effective economic
decisions on the basis of consistent and accurate information of companies regarding their

financial performance and position. This is how the concept of accounting standard evoked and
came into existence.
IFRSs (International Financial Reporting Standards) by IASB
GAAP are heavily accepted and applied among private and public companies in the US whereas
IFRS is used primarily by the rest companies in the world. Multinational companies are needed
to use IFRS standards as these standards are designed by keeping the global companies in mind
to provide them a common set of accounting standards that help them to compare their financial
statements with others. In 2001, the IASB (International Accounting Standards Board) was
founded for replacing an older standards organisation. It was established in London and held
responsible for IFRS that are currently used in a number of nations across the world. At present,
FASB is working with IASB by undertaking the initiative to improve the system of financial
reporting along with the comparability and consistency of multinational companies' financial
reports to harmonise the accounting and financial reporting system across the world.
Types of Accounting Standards around the World
There are two key accounting standard-setting bodies naming International Accounting
Standards Board (IASB), and Financial Accounting Standards Board (FASB). Both these two
accounting standard setters use to set and reset accounting standards to improve accounting
system and financial reporting system transparent, reliable and understandable. These standard-
setting bodies stand as private sector organisations and consist of experienced auditors,
accountants, and academicians those who are highly capable as well as responsible to set
standards for financial reporting. The accounting standards formulated by these two standard-
setting bodies are to some extent similar in terms of the subject line. The set of accounting
standards IASB has developed includes accounting standards from IFRS 1 to IFRS 17 along with
IAS 1 – Presentation of Financial Statements to IAS 41 - Agriculture, in total 57 accounting
standards. On the other side, the accounting standards developed by FASB are GAAP. Some of
the accounting standards accepted and used internationally and are developed by IASB as IFRSs
are provided below in a tabular form.

IFRS 1
First-time Adaptation of International Financial Reporting
Standards
IFRS 2 Share-based Payment
IFRS 3 Business Combination
IFRS 4 Insurance Contract
IFRS 5 Non-current Assets Held for Sale and Discontinued Operations
IFRS 6 Exploration for and Evaluation of Mineral Resources
IFRS 7 Financial Instruments: Disclosure
IFRS 8 Operating Segments
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements
IFRS 11 Joint Agreements
IFRS 12 Disclosure of Interests in Other Entities
IFRS 13 Fair Value Measurement
IFRS 14 Regulatory Deferral Accounts
IFRS 15 Revenue from Contracts with Customers
IFRS 16 Leases
IFRS 17 Insurance Contracts
Accounting standards might be classified as per their subject-matter and the way these standards
are enforced. According to the subject-matter, accounting standards might be 1) disclosure
standards, 2) presentation standards, and 3) content standards. Disclosure Standards are the
standards formulated as the minimum number of uniform rules that are to be applied in external
reporting. These standards require only disclosure of the accounting methods applied by a
reporting company and the assumptions it has made for preparing its periodic financial
statements. These standards are likely controversial and are responsible for creating conflicts of
interest. More specifically, these types of accounting standards do not compel a company in the
process of selecting accounting policies and in the disclosure of the items (financial information)
through financial statements.

Presentation Standards use to specify the types and form of accounting information required to
be showcased or presented. These standards might specify that some financial statements (like a
company's funds-flow statement) be presented and the order to be used for presenting such
financial statement in the annual report. These types of standards place a little constraint on the
selection of accounting procedures and policies than the disclosure standards. Moreover, these
types of accounting standards target to reduce the users' expenditure while utilizing a company's
financial statements. Content Standards use to specify a company's accounting information that
is required to be presented publicly at the end of a particular financial period.
Benefits and Limitations of Accounting Standards
Benefits of Accounting Standards are -
 Improve the reliability and credibility of a company's financial statements: A
company's financial statements are used in making appropriate economic decisions by a
number of internal and external users like existing as well as potential shareholders and
suppliers, trade creditors, employees, customers, taxation authorities, along with few
more interested parties. Due to this, the financial statements of companies must be
reliable, accurate, and credible that could help the stakeholders to make sound financial
decisions in relation to the reporting entity. The main aim of developing accounting
standards by IASB and FASB is to ensure the reliability and credibility of the reporting
entities' financial statements to assist their stakeholders in decision making.
 Beneficial for accountants as well as auditors: A set of accounting standards act as
guiding rules to a company's auditors and accountants. The use of accounting standards
helps accountants to ensure correctness, integrity, and reliability of accounts and financial
reports. It helps auditors to measure whether the reporting entity has followed the
standards while preparing financial statements or not. These standards help auditors to
monitor a company's financial performance.
 Facilitates in comparison and resolving conflict: Accounting standards assist
companies in comparing their own financial status with other companies which
ultimately lead the companies in developing more effective business decisions to enhance

their corporate financial performance. It helps in resolving conflicts arise in measuring,
recognition and other accounting procedures while preparing annual accounts and
financial statements. Moreover, to some extent, it allows companies to reduce confusing
variations in accounting treatments that are used in preparing financial statements.
 Helps in compliance with regulatory authorities: Accounting standards help
companies to act in compliance with the pre-fixed accounting rules and regulations in
relation to financial statements and disclosure. Proper application of accounting standards
assists a company to restrict or eliminate the chances of arising legal issues, and
accounting fraud.
Limitations of Accounting Standards are –
 Restricts companies to make their own choice: Every alternative solution in
accounting to some accounting issues has its benefits and by erasing the power to choose
between the alternatives solutions brings rigidity. Rigidity is not good as it uses to take
away the flexibility in adopting as well as applying accounting policies and principles.
 Inability to override statue: Accounting standards are not capable of overriding statue.
In this because they are needed to be formulated within the scope of the prevailing statue.