The Importance Of Generally Accepted Accounting Principles

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The Generally Accepted Accounting Principles (GAAP) is the rules and practices used by different countries to prepare their financial statements. In other words, it is the accounting principles used by countries according to their own set of accounting rules and principles to prepare financial statements to provide financial information of the company to shareholders, and investors in their own country, but globalization of business had emerged the need of single accounting standards. The globalisation has reduced the barriers in business and has resulted in the expansion of business with different countries. Expansion of business has resulted in the need of single accounting standards which could be used in almost all the countries. Previously, …show more content…

According to Pounder (2007), though GAAP was considered as the best set of principles used for financial reports previously, its importance is decreasing because of the business becoming more complex and global. In addition to that, he argued that single set of accounting standards will not only help to maintain the stability of financial statements and make the global market more efficient but will also help to reduce costs of capital and encourage economic growth. Furthermore, financial reports are prepared according to the accounting principles of the home country and later on the reports are translated as per the principles of foreign country which is very expensive. Etnyre and Singhal (2011) argues that preparing reports as per the principles of foreign countries after preparing in the home country, translating language and currency will be costly for the firms, therefore, adopting common set of reporting standards prepared with the principles of International Financial Reporting Standards will help to reduce cost of translation and increase …show more content…

According to Godfrey & Chamlers (2007), GAAP is a rule - based set of standards whereas IFRS are principle - based standards, and switching from Generally Accepted Accounting Principles (GAAP) to International Financial Reporting Standards(IFRS) will help companies to establish markets, compare financial reporting standards, and compete in the global market. They further stated that less than half of the nation’s worldwide now use the standards of IFRS, and the study also said that the international accounting standards are being accepted by countries like China, Canada, Japan and India. Adoption of International Financial Reporting Standards will help countries to provide stable financial reports and encourage economic growth along with the decrease in capital

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