International standards IAS are fully compatible with U.S. "generally accepted accounting principles" (GAAP). In a range of issues, GAAP contains more detailed methodology of calculation. IAS and GAAP standards are based on same principles of accounting and financial reporting. For various reasons, international standards are heavily influenced by accounting practice in the United States. There are currently more than 30 accounting standards relating to various aspects of accounting.
The deciding factor of using International Financial Reporting Standards is a company's desire to improve its ability to attract vital foreign financing, establishment of long-term trade relations with foreign customers, attracting foreign investors, joint ventures, and issuance of securities in international market.
IAS establishes such requirements for financial statements, as form, time of recording, content, etc. They are aimed at improving and harmonizing legislation, existing system of accounting standards and procedure of financial reporting. Application of IAS in accounting system is also useful for characterizing company performance in a simpler and more realistic form, comparing financial situation of the company with financial situation of foreign companies.
Principles of IAS
Accruals concept in IAS (income and expenditures). Transaction income and expenses are recognized at the time of their appearance (not at the time of money receipt or payment), recorded in accounting records and recognized in financial statements in the period they relate to. Financial statement prepared in accordance with accrual principle informs users not only of past transactions involving payment and receipt of funds, but also obligations on payment in future and resources as funds to be received in future.
Guidelines for preparation of financial statements based on IAS:
1. Diligence. Aims to ensure assets and earnings are not exceeded and liabilities or expenses are not ignored. According to this principle of IAS, one should be ready to repel potential losses and damages and refrain from stating of revenues and income prior to their actual receipt.
2. Substance over form. It is necessary that information on operations would firstly match point and economic reality, not just established legal form.
3. Completeness of information. According to IAS, information must be complete. But one should take into account its importance and value.
4. Comparability. IAS users should be able to compare financial statements of the enterprise, made at different times, to identify common trends, as well as financial statements of different enterprises. Accounting policy cannot be executed arbitrarily.
International standards are developed and approved by the Committee on International Financial Reporting Standards. The Committee was formed on June 29, 1973 as a result of adoption of the agreement by accountancy bodies in Austria, Canada, France, Germany, Japan, Mexico, Netherlands, Ireland, Great Britain, and the United States.