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Generally Accepted Accounting Principles (GAAP) and The Accounting Environment
Generally Accepted Accounting Principles (GAAP) and The Accounting Environment
Accounting Principles
(GAAP) and the
Accounting Environment
The Development of Financial Accounting
and Reporting Standards
Concepts,
principles, and
procedures were
developed to meet the
needs of external
users (GAAP).
Introduction
Financial accounting information must be
assembled and reported objectively.
Third-parties who must rely on such
information have a right to be assured that
the data are free from bias and
inconsistency, whether deliberate or not.
For this reason, financial accounting relies
on certain standards or guides that are
called "Generally Accepted Accounting
Principles" (GAAP).
Introduction
Principles derive from tradition, such as
the concept of matching.
Cash basis
Hybrid system
What’s GAAP?
The corporate accounts and financial statements are
prepared and presented on the basis of GAAP. The
accounts are prepared and presented on the basis of:
1. Conceptual Framework of financial statements
2. Accounting Principles
3. Accounting Standards formulated by the ICAI
4. Requirements of regulatory bodies like the SEBI,
RBI
5. Requirements of the Income Tax Act
Accounting Principles &
Policies
Imagine that you are a
business owner and you
take copies of your financial
records (‘books’) to four
different accountants. You
ask each one to calculate
your profit for the year. A
fortnight later they provide
you with their answers.
Accounting Principles &
Policies
“.. based on cash in your bank at end “.. after re-valuing all
December compared to prior year, you inventory at future
pretty much break even in 2005.”
purchase price and,
assuming a successful
outcome to ongoing
“.. by the time I have written litigation, you have a
off all your old inventory and healthy profit of Rs.xxx.”
overdue receivables and
provided for my fee, you
incurred a significant loss
(Rs.xxx).”
“an interesting year 2009 ..
how much would you like
your profit to be?”
UK GAAP
Indian GAAP
HARMONISATION OF ACCOUNTING
STANDARDS OF VARIOUS
COUNTRIES/ ECONOMIC REGIONS
WHY
Globalisation – opening of economies/ tariff barriers
GLOCAL companies/ MNCs
Access to international capital markets
Global listings/ overseas operations
GLOBAL
ACCOUNTING
MARKET
PLACE
Institutions/Accounting Bodies that
influence Indian GAAP
Dept. to International International
Company Accounting Federation of
Affairs Standard Accountants
Board
Securities &
Reserve
Exchange Indian Bank of
Board of
India
GAAP India
Institute of Comptroller
Chartered Income Tax And Auditor
Accountant of Authorities General of
India India
International Organisations:
International Accounting Standards
Board (IASB)