GAAP (pronounced "gap") stands for "generally accepted accounting principles," a

collection of commonly followed accounting rules and standards for financial reporting.

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.

There is no universal GAAP standard and the specifics vary from one geographic
location or industry to another. In the United States, the Securities and Exchange
Commission (SEC) mandates that financial reports adhere to GAAP requirements. The
Financial Accounting Standards Board (FASB) stipulates GAAP overall and the
Governmental Accounting Standards Board (GASB) stipulates GAAP for state and local
government. Publicly traded companies must comply with both SEC and GAAP
requirements.

Many countries around the world have adopted the International Financial Reporting
Standards (IFRS). The SEC has released a proposed roadmap for conversion from GAAP
to IFRS by 2014.

GAAP vs IFRS
The IFRS or the International Finance Regulation Standards are defined by the
International Accounting Standards Board. The IFRS is increasingly being adopted by
companies across the globe for preparing their financial statements. On the other hand,
the US GAAP has been developed by the Financial Accounting Standards Board or
FASB for listed companies. Chris Cox, former chairman of the Securities Exchange
Commission or SEC, has asked US companies to transition to IFRS by 2016.

There are quite a few similarities between IFRS and US GAAP and the differences are
rapidly getting reduced owing to the convergence agenda of both these organizations.
The differences explained below are just a few significant ones and as of this point of
time. These can change due to developments in the convergence agenda of the IFRS and
US GAAP.

With respect to revenue recognition, US GAAP has developed a detailed guidance for
different industries incorporating standards suggested by the other local accounting
standard organizations in the US. IFRS, on the other hand, mentions two main revenue
standards along with a couple of interpretations related to revenue recognition as
guidance.

There are also some significant differences related to when an expense should be
recognized and the amount that has to be recognized. For instance, IFRS recognizes the
expense of certain stock options with vesting over a period of time sooner than the
GAAP.
There are also some significant differences between the US GAAP and IFRS with respect
to the arena of financial liabilities and equity. Instruments that were regarded as equity by
the US GAAP will be considered as debt under the IFRS standards.

The US GAAP has several criteria for consolidation whereas under IFRS, a company can
consolidate based on the power it can exercise on the financial and operational policies of
the other entity. By being responsible for the reporting and performance of these new
entities can affect the company’s financing arrangements and several more areas.

Unlike US GAAP, IFRS forbids companies from using the LIFO or the last in, first out
method of costing inventory. Companies using LIFO will have to transition to other
costing methodologies.

Read more: Difference Between GAAP and IFRS | Difference Between | GAAP vs IFRS
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GAAP means general accepted accounting principles and IFRS means International
Financial Reporting Standards. GAAP is used in India as Indian GAAP and also used in
USA as US GAAP. Because, Indian accounting standards are made by ICAI on the basis
of International accounting standards. So, except few confusion, almost same rules are
used both Indian GAAP and US GAAP. But following are the major difference between
GAAP and IFRS.

1. Inventory Measurement

GAAP explains that inventory value is measured on the basis of FIFO, LIFO and
weighted average method but IFRS does not allow to use LIFO method. We can not use
last in first out for calculation the value of closing stock under IFRS.

2.  Recognition of Revenue from Services

GAAP accepts the money as revenue when total services are provided and contract of
services is completed. But if there is work is pending under service contract, we can not
recognise the revenue from service. But IFRS allows to show the revenue even some part
of services are pending. IFRS also use zero profit model in case if we can not be
reasonably calculate the revenue.

3. Difference in Construction Contract's Revenue Recognition

a) In GAAP : We can show the %  of completed work and recognise its revenue for
showing in our financial statement.

b) In IFRS : IFRS uses only revenue approach of % of completion method but it does
not use the gross profit approach of % completion method.

As recently as 2008, the Financial Accounting Standards Board (FASB) edited the
standards provided in the Generally Accepted Accounting Principles (GAAP). GAAP is
what businesses currently use to in order to prepare financial statements for public,
private, not-for-profit, and government organizations. However, businesses are now
preparing for a monumental change. They will be required to switch from GAAP to
International Financial Reporting Standards (IFRS).

IFRS are standards that are used internationally. In December 2007, the US Securities
and Exchange (SEC) made the decision to have all companies make the shift to IFRS to
unify businesses under one list of standards in order to reduce the differences of financial
statements. The SEC, under control of former chairman Christopher Cox, set preliminary
dates stating that all publicly traded companies will need to start converting as early as
2014 and the process should be completed no later than 2016. The switch will require a
lot of work, and will not be simple for businesses to accomplish. It is expected that each
company will take approximately two years to complete the transformation.

The SEC stated that foreign companies are allowed to apply IFRS immediately without
making a settlement to US GAAP. There are, however, many companies that already use
IFRS, meaning many businesses need to change sooner, such as US firms with offices
overseas and foreign owned US businesses. Making the switch quickly is a key step to
avoid companies using two different standards for a long period of time.

Dwayne Cook, partner and practice leader for the Mid Atlantic area at Tatum LLC, points
out the ways companies will be affected by stating "companies will have to change the
way they record and report financial data because IFRS and US GAAP rules differ
regarding revenue recognition, compensation, fixed assets and inventory for example"
(Pratt 2). The most significant difference between IFRS and GAAP is that IFRS provides
much less detail. In comparison IFRS consists of 2,500 pages, while GAAP has 17,000.
Currently across the globe, over one hundred companies are already using IFRS and one
hundred and fifty are expected to be by 2011.

There are many benefits that come along with the switch to IFRS. The transformation
will make the process of financial reporting more comprehensive. Companies who have
global operations or use foreign reporting will be able to use streamline reporting and can
reduce related costs by creating a common reporting system that will generate
consistency in statutory reporting. "Mr. Jamil Khatri, Executive Director and Head,
Accounting Advisory Services, KPMG (one of the largest professional services firms in
the world), said that the new guidelines would clear the air over issues like what should
be on the timeline for calculating eligibility criteria for converging to the new standard,
applicability of the norm" (Fresh guidelines 2). These companies could also build up
regional financial centers, reposition finance resources in regard to where they would be
needed and integrate training and development efforts.

Other companies that take part in the conversion will be able to compare financial
reporting with international competitors. IFRS will enable many businesses to access
foreign capital markets and investments. The standards for IFRS are much more flexible
because they are principle-based, and will help rid the system of inconsistencies between
businesses, meaning there will be less confusion in comparing financial results. It will aid
in making it easier to perform cross-border acquisitions, ventures, and spin-offs. Those
countries that have not been able to keep up with the evolution of financial reporting,
such as Canada, will be able to make this transition to level out the playing field. Marion
Kirsh, a chief accountant, reports "the use of IFRS is also expected to result in more
volatility of companies' reported financial results, as the new standards will enable
companies to use more estimates an fair value reporting" (Harman 1). Those businesses
that adopt IFRS early, before the SEC makes it a requirement, will be cutting edge in
comparison to the others. These businesses will gain experience before their competitors
do.

Along with the benefits that follow the conversion of IFRS comes many challenges as
well. Companies are going to have to apply the financial knowledge they already have
with completely new policies. This will be a large change for the ways that many
accounting personnel think. They have been trained to operate in a completely different
way and now are put in an environment where not only more application exists, but
industry guidance as well. Each organization will most likely need to add financial
personnel to their teams who are more familiar with reporting IFRS.

Another concern is that companies will have to upgrade their information technology (IT)
to adhere with the changing systems. There are many things that they will have to
renegotiate due to the switch to IFRS, such as current business contracts, and debt
agreements. These organizations will also have to be sure to budget one-time costs that
are associated with the conversion, such as auditing and external adviser costs. Finally,
throughout all the changes, they should be aware to seek to manage stakeholder
expectations, such as budgeting and planning. "As companies and investors adapt to the
new standards over time, however, Kirsh expects the challenges to subside" (Harman 1).

The steps needed to make the switch to IFRS will affect many branches of companies.
Specifically, it will have large effects on internal system and controls, financing and
contractual agreements, operations and internal and external communications. The larger
the company, the longer the process of switching from GAAP to IFRS will take, meaning
strong management will be needed in order to have success during the transition.
Nevertheless, the most important step during this process is to perform an in-depth
assessment of the impact the conversion could potentially have on the finance and people
in the business. According to KPMG, "the goal to create a detailed plan for completing
the conversion; such an assessment would encompass the following:

• Gap Analysis - accounting and disclosure

• Initial adoption alternatives - IFRS 1
• Financial statement assessment -quantifying differences and directional impact
• Availability of information
• Process and controls requirements
• IT systems changes
• Ex• Project team and work plan (IFRS in the US 3)

If all the important steps above are taken, the company is on its way to a successful
conversion process. The average projected time for each company to complete the
transformation is about two years. It is important that each business comes up with a
conversion plan in advance before they begin any of the process. During the conversion,
all other changes should be synchronized together. In the first phases, the global approach
and policies should be laid out. During the second phase, the international business
should begin to be converted by sending local teams to global basis of the company.
Participation by the personnel is an important key to the success of the business while
making the large change. After the financial reporting and IT have been converted, a
team should get together and develop a way to communicate and explain the changes that
were made. The effort will require highly experienced personnel who are well educated
on the issues and hold strong problem-solving qualities.

In order for companies to operate globally in conjunction with other companies easily,
there must be a universal method of accounting procedures. The switch that the SEC has
made necessary from GAAP to IFRS will benefit businesses worldwide. It may seem to
be more of a burden to many companies, rather than an important shift in the operations
at first. However, most will find that once the switch has been made, the universal
methods make a lot of conversion that was necessary in the past unnecessary. Although it
may take a while to come up with the right IFRS system, once it has all been said and
done, accountants will no longer have to worry about discrepancies between various
accounting methods. The shift that will be occurring in the next few years, although
business related, is just another way in which our world is coming closer to a unified
society.
Works Cited
"Generally Accepted Accounting Principles." Federal Accounting Standards Advisory
Board. 16 Mar. 2010. fasab.gov/accepted.html.
Harman, Megan. "Switch to IFRS will present challenges for investors, analysis."
Investment Executive. 23 Feb. 2010. 18 Mar. 2010.
investmentexecutive.com/client/en/News.
"IFRS in the US: Benefits and Challenges of the Coming Change." KPMG (2008): PDF
file.
Kelly, Susan. "Switch to IFRS Back on Course." Treasury & Risk: The of Finance Today
1 Mar. 2010. 18 Mar. 2010. treasuryandrisk.com/News/Pages/Switch-to-IFRS-Back-on-
Course.
Pratt, Mary K. "New global accounting standard will requir isting resource capabilities

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Fund Flow Vs Cash Flow statement..

Both are used in analysis of past transactions of a business firms. the major differences
are:

1) Fund flow statements is based on the accrual accounting system. in case of preparation
of cash flow statements all transcations effecting the cash or cash equivalents is only
taken into consideration.

2) Fund flow statement analyses the source and application of long term nature of the net
increase and decrease of fund. The cash flow statement considers the increase and
decrease of current assets and current liablities.

3) Fund flow statements tallies the fund generated from various sources with variable
uses to which they are put. Cash flow statements starts with opening balance of cash and
reach to the closing balance of cash proceeding through sources and uses.

Financial Statement Analysis:

Learning Objectives:

1. Prepare and interpret financial statements in comparative and common-size

form.
 2. Compute and interpret financial ratios that would be most useful to a common
stock holder.
3. Compute and interpret financial ratios that would be most useful to a short-
term creditor
4. Compute and interpret financial ratios that would be most useful to  long
-term creditors.

Definition and Explanation of Financial Statement

Analysis:
Financial statement analysis is defined as the process of identifying financial
strengths and weaknesses of the firm by properly establishing relationship between
the items of the balance sheet and the profit and loss account.

There are various methods or techniques that are used in analyzing financial
statements, such as comparative statements, schedule of changes in working capital,
common size percentages, funds analysis, trend analysis, and ratios analysis.

Financial statements are prepared to meet external reporting obligations and also for
decision making purposes. They play a dominant role in setting the framework of
managerial decisions. But the information provided in the financial statements is not
an end in itself as no meaningful conclusions can be drawn from these statements
alone. However, the information provided in the financial statements is of immense
use in making decisions through analysis and interpretation of financial statements.