@MahiRahman 3 September 2020

Principle Accounting

Hi,guys. I'm @MahiRahman from Bangladesh. I'm studies hour's 1st year in NU subject of Accounting. Principle Accounting is the most important subject in The BBA. Principle Accountion : Accounting principles are the rules and guidelines that companies must follow when reporting financial data. The **Financial Accounting Standards Board** (FASB) issues a standardized set of accounting principles in the U.S. referred to as **generally accepted accounting principles** (GAAP).1 Some of the most fundamental accounting principles include the following: https://www.investopedia.com/terms/f/fasb.asp https://www.investopedia.com/terms/g/gaap.asp Accrual principle Conservatism principle Consistency principle Cost principle Economic entity principle Full disclosure principle Going concern principle Matching principle Materiality principle Monetary unit principle Reliability principle Revenue recognition principle Time period principle https://615807fed0c03329fd932f7f0c041000.safeframe.googlesyndication.com/safeframe/1-0-37/html/container.html KEY TAKEAWAYS Accounting standards are implemented to improve the quality of financial information reported by companies. In the United States, the Financial Accounting Standards Board (FASB) issues Generally Accepted Accounting Principles (GAAP). GAAP is required for all publicly traded companies in the U.S.; it is also routinely implemented by non-publicly traded companies as well. Internationally, the International Accounting Standards Board (IASB) issues International Financial Reporting Standards (IFRS). The FASB and IASB sometimes work together to issue joint standards on hot topic issues, but there is no intention for the U.S. to switch to IFRS in the forseeable future. Accounting Principles Understanding Accounting Principles Generally Accepted Accounting Principles Publicly traded companies in the United States are required to regularly file GAAP compliant **financial statements** in order to remain publicly listed on stock exchanges. Chief officers of publicly traded companies and their independent auditors must certify that the financial statements and related notes were prepared in accordance with GAAP. https://www.investopedia.com/terms/f/financial-statements.asp Privately held companies and nonprofit organizations may also be required by lenders or investors to file GAAP compliant financial statements. For example, annual audited GAAP financial statements are a common loan **covenant** required by most banking institutions. Therefore, most companies and organizations in the United States comply with GAAP, even though it is not necessarily a requirement. https://www.investopedia.com/terms/c/covenant.asp Accounting principles help govern the world of accounting according to general rules and guidelines. GAAP attempts to standardize and regulate the definitions, assumptions, and methods used in accounting. There are a number of principles, but some of the most notable include the **revenue recognition** principle, matching principle, materiality principle, and consistency principle. The ultimate goal of standardized accounting principles is to allow financial statement users to view a company's financials with the certainty that information disclosed in the report is complete, consistent, and comparable. https://www.investopedia.com/terms/r/revenuerecognition.asp Completeness is ensured by the materiality principle, as all material transactions should be accounted for in the financial statements. Consistency refers to a company's use of accounting principles over time. When accounting principles allow choice between multiple methods, a company should apply the same accounting method over time or disclose its change in accounting method in the **footnotes to the financial statements**. https://www.investopedia.com/terms/f/footnote.asp Comparability is the ability for financial statement users to review multiple companies' financials side by side with the guarantee that accounting principles have been followed to the same set of standards. Accounting information is not absolute or concrete, and standards such as GAAP are developed to minimize the negative effects of inconsistent data. Without GAAP, comparing financial statements of companies would be extremely difficult, even within the same industry, making an apples-to-apples comparison hard. Inconsistencies and errors would also be harder to spot. International Financial Reporting Standards Accounting principles differ from country to country. The International Accounting Standards Board (IASB) issues **International Financial Reporting Standards** (IFRS). These standards are used in over 120 countries, including those in the European Union (EU).2 The **Securities and Exchange Commission** (SEC), the U.S. government agency responsible for protecting investors and maintaining order in the **securities** markets, has expressed that the U.S. will not be switching to IFRS in the foreseeable future. However, the FASB and the IASB continue to work together to issue similar regulations on certain topics as accounting issues arise.3 For example, in 2014 the FASB and the IASB jointly announced new revenue recognition standards.4 https://www.investopedia.com/terms/i/ifrs.asp https://www.investopedia.com/terms/s/sec.asp https://www.investopedia.com/terms/s/security.asp Since accounting principles differ across the world, investors should take caution when comparing the financial statements of companies from different countries. The issue of differing accounting principles is less of a concern in more mature markets. Still, caution should be used as there is still leeway for number distortion under many sets of accounting principles. Compete Risk Free with $100,000 in Virtual Cash Put your trading skills to the test with our **FREE Stock Simulator.** Compete with thousands of Investopedia traders and trade your way to the top! 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