U.S GAAP vs. IFRS
U.SGAAP vs. IFRS
U.SGAAP vs. IFRS
TheGenerally Accepted Accounting Principles (GAAP) is the set ofaccounting standards that are used in the United States of America. It is usually considered to be the set of rules that guide theaccounting practices. On the same regard, the International FinancialReporting Standards (IFRS) is the set of accounting standards thatare utilized in more than 100 countries globally (Entwistle,2015).Notably, both the IFRS and the GAAP have the objective of offeringrelevant data to a broad range of users. Nonetheless, the GAAP offersdistinct objectives for the business oriented and non-businessoriented entities. On the other hand, the IFRS has only one objectivefor any kind of entity. Therefore, it is important to explain to myaunt the accounting concepts concerning FASB and IASB.
Accordingto FASB, materiality is a universal aspect that is related to thecharacteristics that are qualitative especially reliability andrelevance. It is important to note that both relevance andmateriality are usually defined basing on what can make a differenceor influence the decision maker (Entwistle,2015).Notwithstanding, the two can be differentiated. If the investors donot have the need for a certain kind of information, the informationcan be said to be “not relevant.” On the same regard, theinvestors can disregard some kind of information when its impact orinfluence is small when the information is not “material.” Also,the magnitude of an item by itself without taking into theconsideration the nature of the item as well as the situations inwhich the investor is making the decision will generally not be of asatisfactory basis for the “material” judgment (FinancialAccounting Standards Board, 2017).As such, and according to the FASB, no general materiality standardscan be formulated to justify every consideration that goes into theknowledgeable human judgment. On the other hand, and according tothe IASB, materiality can be said to be an omission magnitude, or themisstating of the accounting data, which as per the circumstancesthat surround it, makes it likely that the reasonable person’sjudgment could be influenced or altered by that misstatement oromission.
TheSpecific Quantitative Materiality Guidelines
Theexamples of quantitative materiality guidelines include the inherent,empirical, and arbitrary guidelines. The arbitrary guidelines arethose in which the relevant literature specifically indicates thatthey are arbitrary. The guidelines are inherent if they logicallyextend another materiality guideline that is quantitative.Additionally, the empirical materiality guidelines are those thatexist whenever a particular study was cited in the literature. Thequantitative materiality guidelines were developed by the Board ofsetting standards in an arbitrary manner, except the gas and oilactivities disclosures in SFAS 69, and the ten percent disclosureguideline, which is used for the segment reporting in SFAS 14(Financial Accounting Standards Board, 2017).
EverySFAS issued by the FASB concludes by saying that the provisions ofthe statement should not be applied to the items that are immaterial.This is according to Rule 3-02 regarding the Regulation S-X ofSecurities and Exchange. The guideline concerning substance over formsuggests that if the amount that would require to be portrayed withrespect to any immaterial item is small, then it is not a must toseparately set it forth. The individuals that turn to Regulation S-Xfor assistance in knowing the materiality concept get to know that anitem that is material is the one that a knowledgeable investor needsto be reasonably informed about under the materiality guideline Rule1-02, and that the information concerning the material is vital inmaking the required statements, in a situation that is not misleading(Entwistle, 2015). Nonetheless, these statements should not be takento be the definitions of materiality because they are only supposedto be used as the general guidelines when setting aside theimmaterial information from the material information.
Quantificationof the Materiality Guidelines
Inmy opinion, the materiality guidelines should be quantified. It isusually difficult just to imagine that it would be worthwhile tooffer the information that can be compared with other information inthe firm or in the industry. It thus means that the informationprovided should be relevant, as well as represent the actual state ofthe firm. As such, for the information to be beneficial, it shouldhave relevance to some extent. The quantification of the materialityguidelines will enhance the faithful representation and relevance ofthe financial statements this will also increase the comparabilityand consistency of the information. The materiality guidelines shouldmake the accounting information more useful, and making themquantitative in nature should not limit such usefulness (Entwistle,2015). As such, it is paramount to always remember that quantifiedmateriality guidelines enhance the convenience of the financialinformation, thus enabling it not to be misleading.
Materialityis has a nature that is very pervasive. As such, it is easier toregard the concept as it relates to the quantitative aspects offaithful representation and relevance. In other words, materiality isa filter or a screen that can be utilized when trying to determine ifthe accounting information is adequately significant in a manner thatcan influence the decisions of the investor in the entity context.The accounting decision makers and other people such as auditorsrepeatedly confront the necessity to make decisions concerningmateriality since the judgments on materiality are basicallyquantitative in nature. They thus pose the question such as is theitem big enough to influence the user or the decision maker?Nonetheless, the response to the question will be influenced by theitem’s nature (Entwistle, 2015). Therefore, quantifying themateriality guidelines will enhance uniformity when it comes to thepreparations of the accounting information.
Articulationof the Financial Statements
Articulationcan simply be defined as the interrelationship between elements. Suchelements exist in two various types in relation to the financialstatements. The first type of these elements entails the equity,liabilities, and assets. The other type comprises of thecomprehensive income which consists of the losses, gains, expensesand revenues. As such, when one type of these elements increases, theother one will increase as well. The relationship between the twotypes is that the net assets are altered by the components of theother type. An increase or decrease cannot occur to an asset withoutthe corresponding increase or decrease in another asset. Thearticulation leads to the financial statements that are significantlyinterrelated in that the statements that portray the components ofthe second type depend on the statements that portray the componentsof the first type. In conclusion, the GAAP and the IFRS are veryimportant components that can help my aunt to understand the conceptsof accounting.
Entwistle,G. (2015). Reflections on Teaching Financial StatementAnalysis. AccountingEducation, 24(6),555-558.
FinancialAccounting Standards Board, (2017). Statementof Financial Accounting Concepts No. 6. FASB.Retrieved 3 April 2017, fromhttp://www.fasb.org/resources/ccurl/792/293/CON6.pdf
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