Content, order and logic of this chapter
Within this chapter we will cover the following topics:
- Background to accounting standards
- What do GAAP, FASB, IASB and IFRS mean?
- Principal accounting concepts - going concern and accruals
- How the concepts impact on the figures (and restrain some behaviour)
- GAAP, which may cause issues with strategies
- Appendix (pages 100-04):
- Extract from UK FRS 102 Section 2 on concepts and pervasive principles
- Principal extant US, international and UK accounting standards
Order and logic
This chapter outlines the history behind, and the principles of, US, UK and worldwide accounting standard setters. There are examples of the plethora of often apparently clever but practically unhelpful language used. Abbreviations such as GAAP are explained. The principles and concepts underlying GAAP are outlined to assist you to communicate while appreciating the sometimes arcane nature of accounting. All directors need to know what accounting standards aim to do and how they impact on reported revenues, costs, assets and liabilities; for example, the standards on revenue mean that you cannot simply 'book' income that suits you! The chapter concludes by considering some of the more controversial accounting standards that may alter reporting and even a chosen strategy.
Background to accounting standards
For many accountants and users of accounts the reason for the existence of financial statements that the Framework considers might seem rather fanciful or grandiose: 'The Board of IASC believes that financial statements are prepared for the purpose of providing information that is useful in making economic decisions.' They are to be 'decision useful'!
This stated principal purpose underlies the entire drift of accounting standard development over the years. Accounting - producing accounts -was (and is) a practical subject. Bookkeeping is not so easy to learn and grasp, but practice helps.