Accounting principles are guidelines and rules that ventures have to follow while reporting financial data. Different national and international agencies issue standardized accounting principles followed by companies all across the globe. The main aim of the accounting principle is to guarantee that the agency’s monetary statements are consistent, complete, and compatible. It helps investors to evaluate and extract valuable information from the financial statement of the company. It includes trend data of the agency over a certain period. It also helps in the comparison of financial information between different agencies. By following these principles, you can mitigate accounting frauds because it increases transparency and correctly identifies red flags.
GAAP or Generally Accepted Accounting Principles
Companies all across the globe have to file accounting principles for maintaining their public listing regularly. When engaging in the Stock Exchange, the public listing is noteworthy. These agencies’ chief officers and independent auditors have to certify the financial statement and related notes by following the generally accepted accounting principles. These principles include crucial principles, conservatism principle, cost principle, consistency principle, etc. Apart from this, the matching principle, reliability principle, monetary unit principle, and full disclosure are other principles that companies will have to follow.
According to Aron Govil, the principles govern the accounting and regulation standards that companies follow all across the globe. From their assumptions to their definition and methods, everything comes within the realm of these principles. Although the list is never-ending, the companies will have to note the matching principle, revenue recognition, and consistency principle. The goal of these principles is to guarantee that the company’s financial statement agrees with the standardized norms. Hence, they will have to prepare reports that are consistent, complete, and compatible.
IFRS international financial reporting standards
Every country has its own set of accounting principles. International agencies issue different standards that companies will have to follow. These standards help more than 120 countries all across the globe. These are steps taken by the national organizations to protect investors and maintain order in the securities market, indicates Aron Govil. Different bodies are responsible for working out these accounting standards. It is not only a role of the national agency, but various international agencies are also active players in this regard.
Remember that gap is different from IFRS. GAAP is rule-based, while IFRS is standards-based. Hence, IFRS is more dynamic in comparison to GAAP principles. Although there are various methodological differences between these systems, companies use this for regulating their monetary policies.
Keep in mind that accounting principles are not a recent phenomenon. They emerged in the 15th and 16th centuries concerning liabilities and assets. The emergence of double-entry accounting practice forms the springboard for the emergence of capitalism and commerce. Different national and international agencies came up with launching accounting standards to be used extensively all across the globe.
These principles provide companies with a level of freedom along with transparency. Since they have to follow a few sets of rules and regulations, they are constantly under surveillance. These complex rules are not unnecessary complications but a necessary prerequisite for a financial statement.