Professional Documents
Culture Documents
Accounting Principles
(GAAP) and the
Accounting Environment
The Development of Financial
Accounting and Reporting Standards
Concepts,
principles, and
procedures were
developed to meet the
needs of external
users (GAAP).
Introduction
Financial accounting information must be
assembled and reported objectively.
Third-parties who must rely on such
information have a right to be assured that
the data are free from bias and
inconsistency, whether deliberate or not.
For this reason, financial accounting relies
on certain standards or guides that are
called "Generally Accepted Accounting
Principles" (GAAP).
Introduction
Principles derive from tradition, such as the
concept of matching.
Cash basis
Hybrid system
What’s GAAP?
The corporate accounts and financial
statements are prepared and presented on the
basis of GAAP. The accounts are prepared
and presented on the basis of:
1. Conceptual Framework of financial statements
2. Accounting Principles
3. Accounting Standards formulated by the ICAI
4. Requirements of regulatory bodies like the
SEBI, RBI
5. Requirements of the Income Tax Act
Accounting Principles &
Policies
Imagine that you are a
business owner and you
take copies of your financial
records (‘books’) to four
different accountants. You
ask each one to calculate
your profit for the year. A
fortnight later they provide
you with their answers.
Accounting Principles &
Policies
“.. based on cash in your bank at end “.. after re-valuing all
December compared to prior year, you inventory at future
pretty much break even in 2005.”
purchase price and,
assuming a successful
outcome to ongoing
“.. by the time I have written litigation, you have a
off all your old inventory and healthy profit of Rs.xxx.”
overdue receivables and
provided for my fee, you
incurred a significant loss
(Rs.xxx).”
“an interesting year 2009 ..
how much would you like
your profit to be?”
UK GAAP
Indian GAAP
HARMONISATION OF ACCOUNTING
STANDARDS OF VARIOUS
COUNTRIES/ ECONOMIC REGIONS
WHY
Globalisation – opening of economies/ tariff barriers
GLOCAL companies/ MNCs
Access to international capital markets
Global listings/ overseas operations
GLOBAL
ACCOUNTING
MARKET
PLACE
Institutions/Accounting Bodies that
influence Indian GAAP
Dept. to International International
Company Accounting Federation of
Affairs Standard Accountants
Board
Securities &
Reserve
Exchange Indian Bank of
Board of
India
GAAP India
Institute of Comptroller
Chartered Income Tax And Auditor
Accountant of Authorities General of
India India
International Organisations:
International Accounting Standards
Board (IASB)
Successor to International Accounting Standard
Committee (IASC)
Develops set of AS that will be acceptable
worldwide
Up to January 1, 2004, IASB has issued 41
International Financial Reporting Standards or
International Accounting Standards
The IASB consists of 14 members (12 full-time
& 2 part-time)
International Accounting Standards
Board (IASB)
Established in 1973 to narrow the
range of differences in accounting
standards.
Increase in international trade has
motivated the IASB to attempt to
eliminate alternative accounting
treatments.
IASB contd…
The members are appointed by the Trustees
of International Accounting Standards
Committee Foundation
All companies in the union have to comply
with the IASB’s Standards as per
announcement by the European Union w.e.f.
January 1, 2005
The ICAI has committed to formulate national
accounting standards in tune with the IASB,s
standard as far as possible
International Federation of
Accountants (IFA)