What are IFRS and GAAP?

The Generally Accepted Accounting Principles (GAAPs), as well as the International Financial Reporting Standards (IFRS) are probably the terms that you may have heard of along your way of pursuing your career. Both of them are procedures and guidelines all accountants in Malaysia should follow. These consist of specific rules about presentation as well as disclosure of finances, regularity, revenue recognition, continuity of values of assets, prudence, periodicity, consistency, and so on. In financial accounting (Also see Difference between Financial Accounting and Management Accounting), people would use GAAPs and IFRS to prepare standard financial details. It is better if you could outsource your accounting issues to an accounting firm Johor Bahru that provides the best accounting services. By doing so, you can ensure that your finances could be revealed objectively and impartially.

Establishment

Initially, the American Institute of Certified Public Accountants (AICPA) came up with the regulations of the GAAPs. Nevertheless, in 1973, AICPA needed to move its responsibility to the Financial Accounting Standard Board (FASB). FASB is a non-profit firm assigned by the Securities and Exchange Commission (SEC). The main purpose of FASB is to implement accounting standards which correctly notify, educate, as well as protect the public.

Alternatively, the International Accounting Standard Board (IASB) has introduced and managed IFRS under the IFRS Foundation. At first, the International Accounting Standards (IAS) were set up. Nevertheless, now, this turns out to be International Financial Reporting Standards (IFRS).

Principles

The general accounting principles of GAAPs and IFRS consist of going-concern, cost, objectivity, monetary unit, matching, revenue recognition, realisation, materiality, consistency, business entity, as well as substance over form. They are about the timing and nature of the measurement of economic activity, the disclosures about this task, and the process of preparing and presenting summarised economic information within a financial statement. However, they have a set of rules which are developed to meet special reporting necessities of firms.

Their Importance

If you runs a business in Malaysia, its operation has to adhere to the IFRS so that you remain constant in presenting your financial details and this also lowers the risk of fraud and misrepresentation. The establishment of GAAP and IFRS is to protect the privilege of all stakeholders, which includes investors like you. Under these rules, the firms have to be responsible for their financial reporting activities. Thus, it makes all interested parties feel more assured. If there is no GAAPs or IFRS, firms would not have the ability to present financial information in an accurate and unbiased manner.

Advantages

If your business follows the regulations of GAAPs and IFRS, it can accomplish its financial targets by presenting consistent and unbiased details to stakeholders, as well as the third parties. Besides, implementing GAAPs and IFRS would lower the risks of misrepresentation or unintended mistakes as firms execute proper controls and safeguards. Also, stakeholders would think that the financial statements which are prepared according to the GAAPs and IFRS to be more trustworthy. This is because they are aware that the accountants have interpreted and reported all the financial transactions. GAAPs and IFRS act as a common language between finance and accounting professionals. Thus, stakeholders can make comparisons among the financial statements from different firms. If you hold the position as a manager, IFRS and GAAPs will help you in drawing practical conclusions regarding the performance of your team if your accountant uses the same principles during a long period.

It is vital to get an audit firm in Johor to audit your company’s account as they can pin point immediately if there is non-compliance with IFRS. This is because it is normal to have some new principles being created occasionally since the accounting world keeps changing. It is crucial to keep yourself updated and deal with those alternations precisely to lead your firm onto the right path.

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