Generally speaking, an accounting standard is a principal that guides accounting practices, specifying when and how certain transactions and economic events are to be recognised, classified, measured and presented.
The first accounting standards were developed for public entries in the 1930s, following the Great Depression.
The increased economic integration and cross-border transactions and capital flows after World War II saw the need of harmonisation of the differences among the accounting principles guiding the major world capital markets.
In 1973, the International Accounting Standards Committee (IASC) was formed in London (as a result of an agreement between accountancy bodies of Australia, Canada, France, Germany, Japan, Mexico, the Netherlands, the UK and the USA), becoming the original organisation responsible for developing the International Accounting Standards (IAS).
The committee was reorganised in 2001 and a new independent body was formed, the International Accounting Standards Board (IASB).
IASB became the new standard setter, replacing the previously used IAS with newly developed International Financial Reporting Standards (IFRS). IFRS aim at establishing a harmonised accounting language, understood and “spoken” in any country and company, specifying exactly how accountants must maintain and report particular types of transactions and events in their financial statements.
Currently, IFRS are standard in many parts of the world, including the European Union and many countries in South America and Asia, but not in the United States. The U.S. Securities and Exchange Commission (SEC) has adopted the US GAAP instead.
The acronym “GAAP” stands for Generally Accepted Accounting Principles. GAAP can be generally described as the set of all National Accounting Standards within a given country.
And as each country has its own GAAP, though bearing similarities, interpretations of the accounting standards might vary heavily from country to a country.
The main difference between GAAP and IFRS is that the former relies on rules, practices and guidelines, while the latter is principle-based.
Eliminating the differences between IFRS and GAAP would, naturally, stimulate transparency and international business and investment.
To be successful in the international capital markets, it is important to be financially bilingual and to speak both IFRS and GAAP.
And EVS Translations is here to assist international business and investors in becoming financially bilingual. We are the expert for annual report translations and maintain one of the largest IFRS terminology databases of its kind. Furthermore, company-specific terminology databases and extensive multilingual glossaries ensure the highest accuracy of our financial translations.