Arab Academy for Science, Technology & Maritime Transport"

MASTER OF BUSINESS ADMINSTRATION (MBA)

Financial Accounting
By Dr. Sherif el Halaby

Paper for comparison between Accounting standards

Prepared by Sarah Magdy

Spring 2022 –(Class-1U)
7 August 2022
Comparison between Accounting standards Class 1U

Contents

Introduction:...................................................................................................................................3
What is an Accounting Standard?...............................................................................................3
Breaking down Accounting standard..........................................................................................3
Financial statement comparability.............................................................................................3
Types of Accounting.......................................................................................................................4
Financial Accounting...................................................................................................................4
Project Accounting......................................................................................................................4
Management Accounting...........................................................................................................4
Financial accounting Standards......................................................................................................5
GAAP vs. IFRS: What is the difference?.......................................................................................5
References......................................................................................................................................7

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Comparison between Accounting standards Class 1U

Introduction:
What is an Accounting Standard?
An accounting standard is a principle that guides and standardizes accounting practices.
An accounting standard is a guideline for financial accounting, such as how a firm
prepares and presents its business income, expenses, assets and liabilities, and may be
in accordance to standards

Breaking down Accounting standard

Accounting standards specify when and how economic events are to be recognized,
measured and displayed. External entities such as banks, investors and regulatory
agencies rely on accounting standards to ensure relevant and accurate information is
provided about the entity.
Accounting standards relate to all aspects of an entity's finances including assets,
liabilities, revenue, expenditures and equity. Specific examples of an accounting
standard include revenue recognition, asset classification, allowable methods for
depreciation, what is considered depreciable, lease classifications and outstanding
share measurement.

Financial statement comparability

Accounting standards ensure the financial statements from multiple companies are
comparable. This is because all entities follow the same rules. Without accounting
standards, there is little consistency as to the reporting of financial information.
Accounting standards make the financial statements credible and allow for more
economic decisions based on accurate and concise information.

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Comparison between Accounting standards Class 1U

Types of Accounting
Accounting means gathering of various records and arranging and recording them
systematically so as they become useful data. It is done to prepare the three main
statements, which are income statement, balance sheet, and cash flow statement. Apart
from this, several other MIS reports as and when required are also prepared. It
calculates the profit or loss of any business for a given period and the nature & value of
a company owner’s equity, assets, and liabilities.
Moreover, the accounting results can be compared with the previous year’s result to
know the weak points of the business. It helps in decision-making by the management.
This information can be produced as evidence in any legal matter. The non-monetary
items are not recorded. Sometimes these are dressed to falsely show the accurate and
fair view in the financial statement. It doesn’t account for the value of money, and hence
financial results are without giving weightage to a value of money.

Financial Accounting
It involves the process of aggregation, compiling, and production of the financial
information of the company in the form of financial statements used by the stakeholders
of the company. The various financial statements of the company include Balance
Sheet, Profit and loss account, Cash flow statement, and the statement of change in
equity. Financial statements of the company are prepared by adhering to the principles
which are led down in Generally Accepted Accounting Principles (GAAP).

Project Accounting
Project accounting is the accounting that is used by the company to track the progress of
the different projects undergoing from the financial perspectives. It plays an integral part
in project management.

Management Accounting
Management accounting leans more towards being a management information system
(MIS) rather than any general purpose financial statement. It is more concerned with
strategic decision-making rather than mere reporting and recording.

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Financial accounting Standards
GAAP vs. IFRS: What is the difference?

Criteria/Item Meaning IFRS GAAP

Acronym Full form International Financial Reporting Generally Accepted Accounting Principles
Standards
Issuing body About standard-setting International Accounting Standards Board Financial Accounting Standards Board
boards (IASB) (FASB)
Revenue It usually refers to public Revenue will equal the cost. Revenue is considered only under
recognition-Long construction contracts. the completed contract method.
term contracts
Extraordinary It is unusual and IFRS prohibits such classification Allowed under GAAP
items infrequent. Shown net of
taxes below discontinued
operations
Property, Plant, Tangible fixed assets Can be reported using either the cost GAAP does not allow the revaluation
and Equipment model or the revaluation model model
Investment Property which is not used Purely and IFRS concept. GAAP does not recognize this category
property in regular operations of
the company
Intangible assets Those assets which Reported using cost or revaluation model GAAP does not allow revaluation model
cannot be seen or touched
LIFO (Last In, Assumes newest goods Prohibited under IFRS Only allowed under US GAAP
First Out) are sold first, and the
oldest goods that were
purchased remain so
including beginning
inventory.
Measurement of Certain revaluation and Considers lower of cost or net realizable Considers lower of cost or market: No,
Inventory Value measurement are required value: If there is a subsequent recovery in write up is allowed if there is a recovery in
for inventory regularly. value, then inventory can be written up; value;
Comparison between Accounting standards Class 1U

Research and Refers to expenses Research costs are expenses as GAAP requires both research and
development incurred for research and incurred, and developmental costs are development costs to be expensed as
costs development to create capitalized; incurred;
innovative products and
services;
Capitalization of During construction, Interests in short term lending are offset Such offsets are not allowed under
interest costs certain costs are against capitalized costs. GAAP.;
capitalized as part of asset
costs.
Component Where each component is IFRS requires companies to use the GAAP also allows the component method
method of isolated and depreciated component method of depreciation of depreciation but is seldom used in
depreciation separately rather than as practice
a whole
Revaluation It refers to an alternative IFRS permits the use of either the cost GAAP prohibits the use of the revaluation
model method used for periodic model or the revaluation model model
valuation and reporting of
long-lived assets.
Investment About the method of Under IFRS, Companies are allowed to Under GAAP, Investment properties are
property valuation measure investment property by either measured using the cost model.
using a cost model or fair value
accounting model.

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Comparison between Accounting standards Class 1U

References

https://www.learnpick.in/prime/documents/notes/details/3854/accounting-standard-international-accounting-standard-ias
https://efinancemanagement.com/financial-accounting/types-of-accounting
https://www.wallstreetmojo.com/ifrs-vs-us-gaap/

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