GAAP, which may cause issues with strategies
At the time of writing there are two IFRSs in the pipeline and these will be converged with similar new US standards. Both may significantly affect financial strategies. The effect will be operational but also may lead to different financial structures being adopted - as outlined in Chapter 12. These new IFRSs will have changed terminology and approaches.
The principal effect will be to tighten up when and how much revenue can be recognized in a period.
The proposal for a new standard has been around for years, originating back in the 1990s. The reason for the delay in issuing it is that it is highly controversial in that it will effectively bring much off-balance sheet financing back onto balance sheets.
If your company has significant amounts of leased assets, it is likely that you are already aware of the impending IFRS. When it comes in, it will certainly affect your financial structure, the balance sheet and gearing.
- It is important to understand the background to accounting standards - the mindset of standard setters.
- You need to be conversant with terms such as GAAP, FASB, IASB and IFRS.
- You cannot use financial statements without a comprehensive understanding of the going concern and accruals concepts.
- You need to appreciate how all accounting concepts and desirable qualities impact on the figures and thus reported strategies.
Revision and learning pointers
Accountants often find it difficult to keep up with developments. You do not have to be an accountant, but an understanding of the standard setters' approach to account principles and rules is important for executives.
The link to an extract from the new UK GAAP in the appendix to this chapter is not too heavy a read and will assist your ability to communicate with the CFO.