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2. GAAP (GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES)
• The common set of accounting principles, standards and procedures.
• Combination of authority standard (set by policy boards) and simply, the
commonly accepted ways.
• Rules that govern how accountants measure, process and communicate
financial information.

3. • GAAP refers to a specific set of guidelines that have been established to help
publicly-traded companies create their financial statements. Publicly-traded
companies are companies that have made stock in their organization available for
sale to the public.
• Ensure that consistent accounting procedures are followed in recording the events
created by business transactions and in preparing financial statements.

4. GAAP Basics
The generally accepted accounting principals are based on the basic tenets of
accounting:
1. Four basic assumptions
2. Principles of accounting
3. Four constraints

5. 1.The Four Basic Assumptions of
Accounting
1. Separate Entity: The company is treated as a separate economic entity for
accounting purposes, even if it isn't a separate legal entity.
2. Monetary Unit: The only business transactions recorded are those in financial
terms (For example :In rupee in India).
3. Time Period: Financial reports cover a specific period of time.
4. Going concern: Financial reporting assumes, unless otherwise known, that the
business will continue operating indefinitely

6. 2.The Principles of Accounting
1. Historical Cost: Initial recording of financial transactions must be at their
original cash equivalent cost.
2. Full Disclosure: Financial statements contain enough information that
they are not misleading.
3. Revenue Recognition: A company records revenue in the accounting
period when services are completed or goods are delivered to the
customer, not when the customer makes payment.

7. Cntd.
4. Matching : The matching principle requires that revenues and any related expenses
be recognized together in the same period.
5. Economic entity assumption: means that any activities of a business must be kept
separate from the activities of the business owner.
6.Monetary unit assumption: means that only activities that can be expressed in
rupee amounts can be included in accounting records.

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7.Time period assumption: means that business activities can be reported in distinct
time intervals. These intervals generally was a financial year i.e. 12 months.
8. Going concern principle: refers to the intent of a business to continue operations
into the foreseeable future and not to liquidate the business.

9. Cntd..
9.Consistency principle: The consistency principle states that, once you adopt an
accounting principle or method, continue to follow it consistently in future accounting
periods. Only change an accounting principle or method if the new method in some
way improves financial results.

10. 3.The Four Constraints of Accounting
1. Materiality: The point of the materiality principle is that if an amount or
transaction is immaterial in the grand scheme of the company, then it may not
need to be treated in the same manner as material transactions.
2. Conservatism: If a company could equally use more than one accounting
method, the company should use the one that affects the financial statements in
the least favorable immediate way.

11. Cntd.
3. Cost-Benefit : Cost-benefit analysis compares the outflows of resources needed to
create additional inflows of resources. The benefits should outweigh the costs.
4. Industry Practice : Some industries have unique requirements, and companies in
those industries can follow standard industry practices.

12. Why GAAP to be followed
• GAAP specifications include definitions of concepts and principles, as well
as industry-specific rules. The purpose of GAAP is to ensure that financial
reporting is transparent and consistent from one organization to another.
• GAAP is set with the objective of providing information that is useful to
investors, lenders, or others that provide or may potentially provide resources
to a company or not-for-profit organization.

13. INTERNATIONAL ACCOUNTING
STANDARDS (IAS)
• International Accounting standard are accounting standards issued by the
International Accounting standards board(IASB).
• Listed companies , and sometimes unlisted companies are required to use the
standards in their financial statements in those countries which have adopted
them.

14. International accounting standard is the international aspects of accounting,
including such matters as accounting principles and reporting practices in
different countries and their classification ; patterns of accounting development
, foreign currency translation; foreign exchange risk; international comparisons
of consolidations accounting and inflation accounting.

15. What Are the Benefits of International Accounting
Standards?
1. Improved Flow of Capital
International Financial Reporting Standards, or IFRS, facilitates the convergence and
transparency of accounting practices. This boosts the flow of capital across the
international markets. Investors and other stakeholders find it more convenient to
compare their business performance with other international companies.

16. 2. Globalized Orientation
Financial reports become automatically acceptable in IFRS-compliant countries, and
companies don't need to prepare alternative sets of financial statements when pursuing
business interests in these countries. This reduces a business's costs of preparing
financial statements destined for international audiences.

17. 3.Generalized Standard-Setting
IFRS stipulations are flexible to both expected and unexpected changes in the global
business environment because they are based on broad principles. The generalized
stipulations are designed to be applicable and accommodative to varying jurisdictional
circumstances and traditions, with minimal interventions of the IASB.

18. 4.Enhanced Financial Reporting
The use of IFRS enhances the quality of financial reports because it leaves
little room for undermining the objectives of the set standards. This is unlike
country-specific accounting rules that are susceptible to circumventions.
Quality financial reports boost investor confidence in a business.