What are the Benefits of Adopting the IFRS & GAAP?
You must have heard of the Globally Accepted Accounting Principles (GAAPs) and International Financial Reporting Standards (IFRS) in your professional life. These are the set of guidelines and procedures that all public accountants of Singapore must adhere to. These include specific principles regarding presentation and disclosure of finances, periodicity, revenue recognition, continuity of asset values, consistency, prudence, regularity etc. GAAPs and IFRS are used to prepare standardized financial information. It is advisable to outsource your accounting matters to companies that offer the best accounting services so that your finances can be disclosed in an objective and unbiased manner.
If you have a company in Singapore, it must live and work by the IFRS/GAAP to maintain consistency in presentation of financial information and to reduce the risk of misrepresentation and fraud. The IFRS/GAAPs were created to safeguard the rights of all stakeholders including investors like you. They make the companies responsible for their financial reporting activities; hence, providing greater assurance to all interested parties. If IFRS/GAAPs had not existed, companies would not be able to provide true and fair presentations of financial information.
If your company adheres to regulations of IFRS/GAAPs, it would be able to achieve its financial objectives by presenting unbiased and consistent information to stakeholders and third parties. Applying IFRS/GAAPs also reduces the risks of misrepresentation or unintentional errors through implementation of proper controls and safeguards. Stakeholders show trust in the financial statements that are prepared in accordance with IFRS/GAAPs. This is so because they know how the accountant has interpreted and reported the financial transactions. IFRS/GAAPs serve as a shared language among accounting and finance professionals, thereby allowing stakeholders to compare financial statements across different companies. As a manager, it will help you draw realistic conclusions about your departments’ performance if your accountants use a set of consistent principles over time.
The American Institute of Certified Public Accountants (AICPA) originally set out the guidelines of the GAAPs. However, in 1973, AICPA had to transfer its responsibility to the Financial Accounting Standard Board (FASB). FASB is a non-profit company appointed by the Securities and Exchange Commission (SEC). The primary objective of FASB is to promulgate accounting standards that precisely enlighten, educate and safeguard the public.
On the other hand, IFRS have been introduced and managed by the International Accounting Standard Board (IASB) under the umbrella of IFRS Foundation. Initially, the International Accounting Standards (IAS) were established. However, this has now been with International Financial Reporting Standards (IFRS).
The basic accounting principles of IFRS and GAAPs include objectivity, cost, going-concern, monetary unit, revenue recognition, matching, realization, consistency, materiality, substance over form and business entity. They are concerned with the nature and timings of measurement of economic activity, the disclosures surrounding this activity, and the preparation and presentation of summarized economic information in financial statements. Nonetheless, they also have a set of principles created to meet unique reporting needs of companies.
It is important to get professionals who offer the best accounting services to create your financial reports as new principles are created from time to time with the change in circumstances in the accounting world. It is important to approach and address those changes accurately in order to lead your company’s efforts in the right direction.