IRFS and US GAAP

The term "GAAP" is an abbreviation for Generally Accepted Accounting Principles (GAAP). GAAP is a codification of how CPA firms and corporations prepare and present their business income and expense, assets and liabilities on their financial statements. GAAP is not a single accounting rule, but rather the aggregate of many rules on how to account for various transactions. The basic principles underlying GAAP accounting are set forth below. When preparing financial statements using GAAP, most American corporations and other business entities use the many rules of how to report business transactions based upon the various GAAP rules. This provides for consistency in the reporting of companies and businesses so that financial analysts, banks, shareholders and the SEC(Securities & Exchange Commission) can have all reporting companies preparing their financial statements using the same rules and reporting procedures. This allows for an "apples to apples" comparison of any corporation or business entity with another. Thus, if company A reports $1,000,000 of net income, using GAAP, then the public and other users of financial statements can compare that net income to another company that is reporting $500,000 of net income, using GAAP. The rules and procedures for reporting under GAAP are complex and have developed over a long period of time. Currently there are more than 150 "pronouncements" as to how to account for different types of transactions, ranging from how to report regular income from the sale of goods, and its related inventory values, to accounting for incentive stock option distributions. By using consistent principles, all companies reporting under GAAP report these transactions on their financial statements in a consistent manner. The various rules and pronouncements come from the Financial Accounting Standards Board (FASB) which is a non-profit organization that the accounting profession has created to promulgate the rules of GAAP reporting and to amend the rules of GAAP reporting as occasion requires. The more recent pronouncements come as Statements of the Financial Accounting Standards (SFAS). Changes in the GAAP rules can carry tremendous impact upon American business. For example, when FASB stopped requiring banks to mark their assets (loans) to the lower of cost or market (i.e. value of a foreclosed home loan), the effect on a bank's "net worth" as defined by GAAP can change dramatically. While generally neutral, there is some pressure on the FASB to yield to industry or political pressure when it makes its rules. Nonetheless, since all companies report using the same set of rules, knowing the rules of GAAP reporting can tell the user of financial statements a great deal. The study of accounting, in large part, entails learning the many rules and promulgations set forth by FASB and how to apply those rules to actual business events. GAAP is slowly being phased out in favor of the International Financial Reporting Standards (IFRS)[citation needed] as the global business becomes more pervasive. GAAP applies only to United States financial reporting and thus an American company reporting under GAAP might show different results if it was compared to a British company that uses the International Standards. While there is tremendous similarity between GAAP and the international rules, the differences can lead a financial statement user to incorrectly believe that company A made more money than company B simply because they report using different rules. The move towards International Standards seeks to eliminate this kind of disparity.

Financial Accounting is information that must be assembled and reported objectively. Thirdparties who must rely on such information have a right to be assured that the data are free from bias and inconsistency, whether deliberate or not. For this reason, financial accounting relies on certain standards or guides that are called "Generally Accepted Accounting Principles" (GAAP). Principles derive from tradition, such as the concept of matching. In any report of financial statements (audit, compilation, review, etc.), the preparer/auditor must indicate to the reader whether or not the information contained within the statements complies with GAAP.

Principle of regularity: Regularity can be defined as conformity to enforced rules and laws. Principle of consistency: This principle states that when a business has once fixed a method for the accounting treatment of an item, it will enter all similar items that follow in exactly the same way. Principle of sincerity: According to this principle, the accounting unit should reflect in good faith the reality of the company's financial status. Principle of the permanence of methods: This principle aims at allowing the coherence and comparison of the financial information published by the company. Principle of non-compensation: One should show the full details of the financial information and not seek to compensate a debt with an asset, revenue with an expense, etc. (see convention of conservatism) Principle of prudence: This principle aims at showing the reality "as is": one should not try to make things look prettier than they are. Typically, revenue should be recorded only when it is certain and a provision should be entered for an expense which is probable. Principle of continuity: When stating financial information, one should assume that the business will not be interrupted. This principle mitigates the principle of prudence: assets do not have to be accounted at their disposable value, but it is accepted that they are at their historical value (see depreciation and going concern). Principle of periodicity: Each accounting entry should be allocated to a given period, and split accordingly if it covers several periods. If a client pre-pays a subscription (or lease, etc.), the given revenue should be split to the entire time-span and not counted for entirely on the date of the transaction. Principle of Full Disclosure/Materiality: All information and values pertaining to the financial position of a business must be disclosed in the records. Principle of Utmost Good Faith: All the information regarding to the firm should be disclosed to the insurer before the insurance policy is taken.

[edit] International accounting standards and rules

Many countries use or are converging on the International Financial Reporting Standards (IFRS), established and maintained by the International Accounting Standards Board. In

some countries, local accounting principles are applied for regular companies but listed or large companies must conform to IFRS, so statutory reporting is comparable internationally, across jurisdictions.

Parallel Accounting supports multible accounting principles. For your client Accounting principle reporting requirements could include local Generally Accepted Accounting Principles (GAAP), US GAAP and International Financial Reporting Standards (IFRS). SAP Provides Additional Ledger feature from ECC 5.0 onwards. With this feature Data recorded in the general ledger is recorded in multiple ledgers. That means apart from the leading ledger you can maintain 2 additional ledger to fulfill your requirement i.e. Local GAAP and US GAAP. The ledgers are assigned to specific Accounting Principles and difference postings can be recorded to specific ledgers through a single user interface. Foreign currency valuation methods can be assigned to specific ledgers and fixed asset accounting for various accounting principles is managed through the use of depreciation areas and ledgers. When it comes to impacts i worked on FCV, Asset Depreciation and Accrual Engine using the New GL with ECC 6.0. I have identified below changes during my workout. May be some more impacts might be there in other application areas with the introduction of parallel ledger. 1. In asset accounting ledger groups are assigned to the depreciation areas. Consequently, postings are made to separate ledgers in FI. The leading ledger has to be assigned to depreciation area 01. 2. Within the General Ledger Receivables / Payables / foreign currency balance sheet accounts may be valuated differently on the basis of different accounting principles. Accruals and deferrals need to be allocated to the relevant periods. The use of parallel accounting may mean that different accrual/deferral postings need to be made, depending on the accounting principle. This needs Assignment of the accrual method to the accounting principle (determination of the ledger group).

Follow the steps mentioned below

1.Create two non leading ledgers one for US GAAP and one for IFRS apart from the leading ledger 0L. Then you need to specify the currency and fiscaly year & posting period varaint for these non leading ledgers. 2. Define Accounting Principles GAAP and IFRS (just a code and description)

3. Assign accounting principles to ledger groups

2) Difference between leading and non leading gl Leading ledger 1.It is a base ledger, which updates the cost center and consolidation.2.You can define only one ledger as the leading ledger SAP provides the leading ledger "0L". 3.The currency of the leading ledger is always used as the first currency.4.The leading ledger is integrated with all subsidiary ledgers. 5.Only the values from the leading ledger are sent to CO. 6.The leading area in Asset Accounting (depreciation area 01) must be posted to the leading ledger. 7.Leading ledger uses the (additional) local currencies assigned to the company code. 8.Leading ledger uses the GL Total Table: FAGLFLEXT.

Non-leading ledgers 1.Non-leading ledgers are activated by company code.2.You can define additional currencies that deviate from those used by the leading ledger.3.As a second and third currency of a non-leading ledger, you may only use currency types that you have already assigned to the relevant company code for the leading ledger.4.You can define a fiscal year variant that differs from the leading ledger. If you don't specify a FYV, the FYV of the company code is automatically used.5.You can also define a posting period variant that differs from the leading ledger.6.Separate document types

and number ranges can be defined for non-leading ledgers by users, to ensure continuity in ledger numbering.7.Nonleading ledger updates the profit center, segment.8.The nonleading ledgers are used as parallel ledger together with the leading ledger. This can be used to apply different accounting standards, such as IAS/IFRS or US-GAAP

Good to Know: IFRS VS. US GAAP There are two accounting standards that are generally used, the International Financial Reporting Standard (IFRS) and the United States Generally Accepted Accounting Principles (US GAAP). Most companies in the United States usually use the US GAAP, while the rest of the world generally uses the IFRS. The Frankfurt Stock Exchange generally uses the IFRS, but US GAAP and Japanese GAAP are accepted as equivalent to the IFRS since January 1, 2009. Other non-EU applicants must comply with the IFRS. Due to globalization, companies are doing cross-border businesses and it affects which standard should be used, especially in M&A case. In February 2010, the Security and Exchange Commission (SEC) acknowledge IFRS as a global uniformed accounting standard that best supports global companies. With this gradual switch to IFRS, U.S. companies who want to go global or go public at the Frankfurt Stock Exchange need to know the difference between both standards. Likewise, Asian, European, Australasian, and African businesses who want to do business with U.S. companies or are currently not using IFRS should also know these things. In many occasions now, it is not uncommon for companies to prepare two financial statements to comply with both standards. The main differences between both standards are:

AFG Listings has more than five years of experience converting the US GAAP into IFRS report and vice versa. While this information is important to know, leave the details to us to work on. Let us do your financial report conversion and get you a step closer to IPO at the Frankfurt Stock Exchange. Contact us now for more information.

IFRS and US GAAP: similarities and differences

Adoption of IFRS includes revenue recognition and provisions & contingencies. Noncurrent assets make up a significant portion of many companies' balance sheets, and are a critical part of the operations of a business. Adopting IFRS may have a significant impact on how those amounts are reported, as well as affecting how they are measured for impairment. Business transactions are an important part of many companies' business strategies. Business transactions including business combinations, leasing arrangements and investing activities while discussing the key differences between US GAAP and IFRS in these areas. The benefits employees receive can take many different forms including cash, deferred compensation, non-cash awards and post-employment benefits. Accounting under IFRS, defers from US GAAP in the most common types of employee benefits: pensions and sharebased payments.

US GAAP and IRFS ( IRFS Include IAS) set out different requirements regarding segment reporting: US GAAP requires a virtually complete balance sheet at the segment level for segment reporting (essentially everything apart from stockholders' equity). The segment is defined as a subarea of a company with activities that generate expenses and revenues, with an operating result that is regularly used by management for profit assessment and resource allocation purposes, and for which separate financial data is available. we can use the Segment dimension to represent the segment levels. IAS requires for segment reporting primary and secondary segmentation, which have different reporting depth. A distinction is made between the following types of segment: Business segment A business segment is a distinguishable subactivity of a company that relates to the manufacture of a product or the provision of a service and that has risks and revenues that differ from those in other business segments. Geographical segment A geographical segment is a distinguishable subactivity of a company that relates to the manufacture of a product or the provision of a service within a specific field of business and that has risks and revenues that differ from those in other geographical segments active in other fields of business. You can choose which segment type you want to have as the primary or the secondary segmentation. You can use the Segment dimension for the primary segmentation. You can represent the secondary segmentation in your system. You can do this by including a user-defined field Region in your general ledger accounting, for example.