International Accounting Standards: A Comprehensive Guide

Posted on Aug 2, 2024 in Economy

Objectives of Standardization

  • Establish a common language for financial reporting
  • Ensure comparability and understandability of financial information
  • Enhance the usefulness of financial information for decision-making

Standard-Setting Bodies

International Accounting Standards Board (IASB)

  • Issues International Financial Reporting Standards (IFRS)

Financial Accounting Standards Board (FASB)

  • Issues U.S. Generally Accepted Accounting Principles (GAAP)

International Accounting Standards (IAS)

  • Developed by the IASB
  • Aim to harmonize accounting practices globally
  • Widely adopted by companies in over 140 countries

U.S. Generally Accepted Accounting Principles (GAAP)

  • Developed by the FASB
  • Used by companies in the United States
  • Based on a principles-based approach

Convergence of IAS and GAAP

  • Efforts are underway to converge IAS and GAAP
  • Goal is to create a single set of global accounting standards

National Accounting Standards

  • Many countries have their own national accounting standards
  • These standards may differ from IAS and GAAP
  • Companies must comply with the accounting standards of the country in which they operate

Fair Value

  • An accounting concept that measures assets and liabilities at their current market value
  • Used to provide a more accurate representation of a company’s financial position

General Accounting Plan (PGC)

  • The official accounting framework used in Spain
  • Consists of five parts:
    • Conceptual Framework of Accounting
    • Registration and Valuation Standards
    • Annual Accounts
    • Chart of Accounts
    • Definitions and Accounting Relationships

Key Concepts of the PGC

  • Enterprise-principle at work: The company is assumed to be of indefinite duration.
  • Accrual: Economic events are recorded when they occur, regardless of receipt or payment.
  • Uniformity: Once a criterion is adopted, it must be maintained over time.
  • Prudence: Estimates and valuations should be made with caution.
  • Materiality: The relative importance of an item should be considered when applying accounting principles.

Elements of the Annual Accounts

Balance Sheet

  • Assets
  • Liabilities
  • Equity

Profit and Loss Account

  • Revenue
  • Expenses

Criteria for Recognition of Assets and Liabilities

Assets:

  • Probable future economic benefits
  • Measurable reliably

Liabilities:

  • Probable future outflow of resources
  • Measurable reliably

Criteria for Recognition of Revenue and Expenses

Revenue:

  • Increase in resources
  • Measurable reliably

Expenses:

  • Decrease in resources
  • Measurable reliably

Conclusion

International Accounting Standards play a vital role in ensuring the transparency and comparability of financial information. By understanding the key concepts and principles of IAS, companies can improve the quality of their financial reporting and enhance their credibility with investors and other stakeholders.