GAAP vs. IAS
Difference Between GAAP and IAS
To talk about variations between GAAP and IAS, we first need to have an understanding of the two concepts. For a layman, GAAP refers to General Accepted Accounting Principles that are an outline inside which financial statements of any company are prepared, summarized and analyzed. They replicate the standards, rules and conventions that are conventionally followed by chartered accountants and accounting firms while recording and presenting the financial results of any company in any country. Different nations have their own versions of GAAP which are slightly different from each other. IAS on the other hand is International Accounting Standards which is an initiative of International Accounting Standards Committee (IASC). IASC intends to standardize accounting all over the world so that accounting principles are same everywhere and the results of different companies can be compared effortlessly.
GAAP is not a particular rule but a collection of rules that form a scaffold under which chartered accountants in any area compute income, assets, liabilities and expenses of firms and record and abridge their financial results. Government does not direct companies as to how they should present their financial statements. Central objective of any GAAP is to present financial information about the company to potential investors and banks so that they can base their decisions reading this information. Each country has its own GAAP which is used by companies while presenting their financial statements. These rules have evolved over centuries of accounting practices and are simply understood by financial experts, banks, investors and tax authorities.
With globalization and emergence of multinational companies, GAAP started to present difficulties and even caused resentment and dissatisfaction among parent companies as they originate different accounting principles in different countries. International Accounting Standards is the initiative of International Accounting Standards Committee with the objective of having same accounting values all over the world which will reproduce fair and similar financial results of companies wherever they may be situated. Though IAS is not binding, most countries try to incorporate changes adopted by IASC in their GAAP to come closer to IAS.
Difference between GAAP and IAS
It is simple to see that both GAAP and IAS are accounting principles that are used to record, recapitulate and analyze financial results of companies. But these accounting practices have evolved in different countries in different ways which means there are differences that make it complex to assess and evaluate the financial performances of two companies operating in different countries. To offset these differences and to have uniformity in these accounting principles and to make financial results as transparent as they could be, IAS was introduced. If we look closely, there is not much of a difference between different GAAP being accomplished, and the only difference lies in the way effects are interpreted.
It is the endeavor of IASC to finally have the same accounting principles across the globe to let people have a fair analysis and evaluation of performance of different companies.