Meaning of GAAP

GAAP (generally accepted accounting principles) is a collection of commonly-followed accounting rules

and standards for financial reporting. The acronym is pronounced "gap." GAAP specifications include
definitions of concepts and principles, as well as industry-specific rules.
Thus GAAP encompasses:
 Basic accounting principles/guidelines
 Accounting Standards usually issued by the premier accounting body of the country
 Industry-specific accounting practices to cover unusual scenarios
Accounting Concepts
1. Business entity concept: A business and its owner should be treated separately as far as their
financial transactions are concerned.
2. Money measurement concept: Only business transactions that can be expressed in terms of money
are recorded in accounting, though records of other types of transactions may be kept separately.
3. Going concern concept: In accounting, a business is expected to continue for a fairly long time and
carry out its commitments and obligations. This assumes that the business will not be forced to stop
functioning and liquidate its assets at “fire-sale” prices.
4. Cost concept: The fixed assets of a business are recorded on the basis of their original cost in the
first year of accounting. Subsequently, these assets are recorded minus depreciation. No rise or fall
in market price is taken into account. The concept applies only to fixed assets.
5. Accounting year concept: Each business chooses a specific time period to complete a cycle of the
accounting process—for example, monthly, quarterly, or annually—as per a fiscal or a calendar year.
6. Matching concept: This principle dictates that for every entry of revenue recorded in a given
accounting period, an equal expense entry has to be recorded for correctly calculating profit or loss
in a given period.
7. Realization concept: According to this concept, profit is recognized only when it is earned. An
advance or fee paid is not considered a profit until the goods or services have been delivered to the
buyer.
Accounting Conventions

An accounting convention is a common practice used as a guideline when recording a business

transaction. It is used when there is not a definitive guideline in the accounting standards that govern a
specific situation. Thus, accounting conventions serve to fill in the gaps not yet addressed
by accounting standards. Accounting conventions are guidelines used to help companies determine how
to record certain business transactions that have not yet been fully addressed by accounting standards.
These procedures and principles are not legally binding but are generally accepted by accounting bodies.
Basically, they are designed to promote consistency and help accountants overcome practical problems
that can arise when preparing financial statements.
There are four main conventions in practice in accounting: conservatism; consistency; full disclosure;
and materiality.
Conservatism is the convention by which, when two values of a transaction are available, the lower-
value transaction is recorded. By this convention, profit should never be overestimated, and there
should always be a provision for losses.
Consistency prescribes the use of the same accounting principles from one period of an accounting cycle
to the next, so that the same standards are applied to calculate profit and loss.
Materiality means that all material facts should be recorded in accounting. Accountants should record
important data and leave out insignificant information.
Full disclosure entails the revelation of all information, both favorable and detrimental to a business
enterprise, and which are of material value to creditors and debtors.

Difference between Accounting concept and Accounting Convention.

Accounting Standard Board

The Accounting Standards Board (ASB) is an independent statutory body with the responsibility to set
and issue accounting standards for preparation and presentation of financial statements in Nepal. The
Government of Nepal established ASB in March 2003 with an amendment to the Institute of Chartered
Accountants of Nepal Act 1997 incorporating the provision for its establishment and operation. The ASB
is primarily responsible for setting accounting and financial reporting standards for business enterprises
in line with the International Financial Reporting Standards (IFRSs). Since 2007, ASB has also been
entrusted by Nepal Government with the responsibility to develop accounting standards for public
sector in line with the International Public Sector Accounting Standards (IPSASs).

The ASB consists of 13 members comprising a Chairman appointed by the Government of Nepal from
Fellow Chartered Accountants (FCA) and other members are representative of Ministry of Finance,
representative of Office of the Auditor General, representative of Financial Comptroller General Office,
Company Registrar of Office of the Company Registrar, Director General of Inland Revenue Department,
Chairman of Securities Board of Nepal & Five Chartered Accountants (CA) & One Registered Auditor (RA)
nominated by Government of Nepal on recommendation of Institute of Chartered Accountants of Nepal
(ICAN).
The objective of the Board is to formulate accounting standardsin line with IAS/IFRSs issued by IASB. The
Board has full discretion in developing and pursuing the technical agenda for setting Accounting
Standards in Nepal.
The main functions of the Board are to:

1. Regulate and systematized accounting profession, formulation of accounting standards on the basis
of IFRSs.
2. Set procedures to develop Accounting Standards and publish materials related to Accounting
Standards.
3. Make improvement and revision of Accounting Standards in line with IFRSs.
4. Interpretation of Accounting Standards.
5. Perform other functions related to Accounting Standards.

Nepal Accounting Standards (NASs)

NAS 1: Presentation of Financial Statements
NAS 2: Inventories
NAS 7 :Statement of Cash Flows
NAS 8: Accounting Policies, Changes in Accounting Estimates and Error
NAS10 :Events after the Reporting Period
NAS 11 : Construction Contracts
NAS 12 : Income Taxes
NAS 16: Property, Plant & Equipment
NAS 17 : Leases
NAS 18 : Revenue
NAS 19 : Employee Benefits
NAS 20 : Accounting for Government Grants and Disclosure of Government Assistance
NAS 21 : The Effects of Changes in Foreign Exchange Rates
NAS 23 : Borrowing Cost
NAS 24 : Related Party Disclosures
NAS 26 : Accounting & Reporting by Retirement Benefit Plans
NAS 27 : Consolidated & Separate Financial Statements
NAS 28 : Investments in Associates
NAS 32 : Financial Instruments: Presentation
NAS 33: Earnings Per Share
NAS 34 : Interim Financial Reporting
NAS 36: Impairment of Assets
NAS 37 : Provisions, Contingent Liabilities & Contingent Assets
NAS 38 : Intangible Assets
NAS 39 : Financial Instruments: Recognition & Measurements
NAS 40 : Investment Property
NAS 41 : Agriculture

Nepal financial Reporting standard(NFRS)

Nepal Financial Reporting Standards is the set of accounting standards issued by Accounting Standards
Board of Nepal on the basis of International Financial Reporting Standards (IFRS).

NFRS can be regarded as common accounting and reporting language. NFRS aims to bring a common
base for evaluation through uniform presentation, measurement, treatments and disclosure of financial
events. Subjecting the diversity of business scenario and accounting complexity, there are 40 standards
issued by Accounting Standard Board and implemented by Institute of Chartered Accountant of Nepal
(ICAN).

NFRS is all set for being mandatory by 2017 as the monetary policy 2014-2015 has propounded full
compliance. The regulator in accounting standard in Nepal, ICAN has made it mandatory for listed
multinational companies and listed state owned enterprises with minimum paid up capital of Rs. 5
billion to comply NFRS in preparation of financial statements from 2014-15.

International Financial Reporting Standards (IFRS)

International Financial Reporting Standards, commonly called IFRS, are accounting standards issued by
the IFRS Foundation and the International Accounting Standards Board (IASB). They constitute a
standardized way of describing the company’s financial performance so that company financial
statements are understandable and comparable across international boundaries.

The IFRS include

 International Financial Reporting standards (IFRSs)—developed by the IASB;
 International Accounting Standards (IASs)—adopted by the IASB;
 Interpretations originated from the International Financial Reporting Interpretations Committee
(IFRICs)
 Standing Interpretations Committee (SICs)