GAAP

Examples of GAAP in the following topics:

• Differences Between GAAP and IFRS and Implications of Potential Convergence

  • A major difference between GAAP and IFRS is that GAAP is rule-based, whereas IFRS is principle-based.
  • A major difference between GAAP and IFRS is that GAAP is rule-based, whereas IFRS is principle-based.
  • Consolidation — IFRS favors a control model whereas GAAP prefers a risks-and-rewards model.
  • With GAAP, they are shown below the net income.
  • GAAP.

• Effects of GAAP on the Income Statement

  • GAAP's assumptions, principles, and constraints can affect income statements through temporary (timing) and permanent differences.
  • These differences are due to the recording requirements of GAAP for financial accounting (usually following the matching principle and allowing for accruals of revenue and expenses) and the requirements of the IRS's tax regulations for tax accounting (which are more oriented to cash).
  • Also, there are events, usually one time, which create "permanent differences," such as GAAP, which recognizes as an expense an item that the IRS will not allow to be deducted.
  • To achieve basic objectives and implement fundamental qualities, GAAP has four basic principles:
  • GAAP reporting also suggests that income statements should present financial figures that are objective, material, consistent, and conservative.

• Introduction to GAAP

  • Generally Accepted Accounting Principles (GAAP) is the standard framework for financial accounting used in any given jurisdiction.
  • GAAP is not a single accounting rule, but rather an aggregate of many rules on how to account for various transactions. .
  • Securities and Exchange Commission (SEC) requires that US GAAP be followed in financial reporting by publicly traded companies.
  • This image demonstrates the differences in accounting standards between GAAP and IFRS regarding classifying cash flows.
  • Differentiate between GAAP constraints, assumptions and principles, and the role they play in the preparation of financial statements

• Cash Flow from Operations

  • The indirect method must be disclosed in the cash flow statement to comply with U.S. accounting standards, or GAAP.
  • One major difference between GAAP and IFRS is how interest paid is categorized.
  • Under GAAP, a loan payment would have to be broken down into two parts: the payment on principal (financing) and the payment of interest (operating).
  • All of the major operating cash flows, however, are classified the same way under GAAP and IFRS.
  • Some transactions may be classified as different types of cash flows under GAAP and IFRS accounting standards.

• Disadvantages of LIFO

  • GAAP) when filing on U.S.
  • GAAP as previously required.
  • GAAP and financial statement requirements (SEC, 2007).

• Reporting of Financial Statement Analysis

  • The reporting of financial statement requires conformity to GAAP in the US and IFRS internationally.
  • In the US, companies must conform to GAAP, or generally accepted accounting principles.
  • The basic objectives of GAAP state that financial reporting should provide information that is:
  • There has been a recent push in the US to adopt IFRS to replace GAAP.
  • Financial statements in the US are required to conform to the principles set forth by GAAP.

• Additional Items: Auditor and Management Reports

  • The two types of situations that result in a qualified opinion report are a single deviation from generally accepted accounting principles (GAAP) and limitation of scope.
  • A deviation from generally accepted accounting principles occurs when one or more areas of the financial statements do not conform to GAAP.
  • An example of GAAP is incorrectly calculating depreciation.
  • An auditor issues this report when the financial statements presented are free of material misstatements and are represented fairly in accordance with GAAP.
  • An adverse opinion is issued when the auditor determines that the financial statements of an auditee are materially misstated and, when considered as a whole, do not conform to GAAP.

• Activities of the Business: Financing, Investing, and Operating

  • Under GAAP, operating cash flows include:
  • Interest payments (alternatively, this can be reported under financing activities in IAS 7 and US GAAP)
  • As with operating activities GAAP principles dictate how non-operating items are classified on the statement of cash flows.

• Financial Statements Across Periods

  • Companies prepare three financial statements according to GAAP rules: the income statement, the balance sheet, and the cash flow statement.
  • Corporations report financial statements following Generally Accepted Accounting Principles (GAAP).

• Overview of Income Tax Accounting

  • In order to properly account for income taxes, it is important to understand that the Internal Revenue Service code that governs accounting for tax liability isn't the same as the generally accepted accounting principles (GAAP) for reporting tax liability on the financial statements.
  • Note this method is notacceptable under GAAP.
  • This method is the only one accepted by GAAP.