International Accounting

1). Definition of International Accounting

International accounting is the international aspects of accounting, including such matters as accounting principles and reporting practices in different countries and their classification; patterns of accounting development; international and regional harmonization, foreign currency translation; foreign exchange risk; international comparisons of consolidation accounting and inflation accounting; accounting in developing countries; accounting in communist countries; performance evaluation of foreign subsidiaries. Its ultimate goal is to develop a universal system of accounting that would receive acceptance the world over.

2). What Are International Accounting Standards (IAS)?

International Accounting Standards (IAS) are a set of rules for financial statements that were replaced in 2001 by International Financial Reporting Standards (IFRS). They've since been adopted by most major financial markets worldwide.

Both standards were issued by the International Accounting Standards Board (IASB), an independent body based in London. IFRS has been widely adopted with 160 of 168 nations and reporting jurisdictions committing to these accounting standards for domestically listed companies.

The United States doesn't follow IFRS, however. The U.S. Securities & Exchange Commission requires to follow Generally Accepted Accounting Principles (GAAP). China and Japan also declined to adopt IFRS although adoption has slowly gained momentum in Japan over the years.

3). The key differences between GAAP AND IFRS

The preference between IFRS and GAAP is simply a matter of perspective. IFRS is a more principles-based approach and more flexible. GAAP is much more rules-based and offers thorough rules.

a. Governing Bodies

• GAAP: Established by the Financial Accounting Standards Board (FASB) in Connecticut.
• IFRS: Set by the International Accounting Standards Board (IASB), in London.

b. Principles-Based vs. Rules-Based

• GAAP: Considered more rules-based, with detailed guidelines for various scenarios.
• IFRS: Considered more principles-based, offering broader guidance and relying on professional judgment.

c. Fixed Assets

• GAAP: Fixed assets are reported at historical cost, with depreciation over their useful life.
• IFRS: Allows revaluation of fixed assets to fair value, provided there is an active market for the asset.

d. Development Costs

• GAAP: Research and development (R&D) costs are generally expensed as incurred.
• IFRS: Permits capitalization of development costs if specific criteria are met, such as demonstrating technical and commercial feasibility.

e. Financial Statement Presentation

• GAAP: Specifies the formats for financial statements, including a strict categorization of items.
• IFRS: Provides more flexibility in financial statement presentation but requires a classified statement of financial position.

f. Extraordinary Items

• GAAP: Extraordinary items are separately reported in the income statement if they meet specific criteria.
• IFRS: Does not recognize extraordinary items; all items are included as part of ordinary activities.

h. Leases

• GAAP: Classifies leases as operating or finance leases, with distinct accounting treatments.
• IFRS: Under IFRS 16, most leases are treated