Understanding Accounting Principles

What are the principles of accounting?

The principles of accounting have varied in the past few decades, with several organizations having the final say on proper accounting standards. Current accounting standards for state and local governments are set by the Governmental Accounting Standards Board. The GAAP accounting standards are determined by the Financial Accounting Standards Board. These standards are not law, but regulatory agencies mandate that this form be used for the sake of convenience and ease of interpretation. Although the United States currently abides by the Generally Accepted Accounting Principles (GAAP), the US has begun to change accepted accounting principles and standards to the International Accounting Standards Board, in order to standardize its accounting principles with the principles used by the rest of the world. If completed on schedule, this change will happen in 2014. Principles of accounting must be standardized to provide the best possible information for potential investors as well as allowing for the finances of two companies to be compared.

What are the principles of accounting for the federal government?

Federal Accounting Standards Advisory Board publishes handbooks to advice federal agencies and entities that receive federal money. These handbooks are lengthy with important listings such as proper terms to use when composing financial statements and listing of proper abbreviations. There are also a number of procedures based on specific functions of federal agencies and expenses common to federal entities.

What are the International Financial Reporting Standards?

The International Financial Reporting Standards are a set of accounting principles that provide guidelines for the proper reporting of financial data. The standards of the IFRS are set by the Board of International Accounting Standards Committee in London, United Kingdom. The standardization of the principles of accounting ensures the transferability of financial reporting standards between countries as the lack of such standards would mean that financial data would not be accurate and readily understood by a company or investor in a different jurisdiction or country that the reporting company is located at.

What are the general obligations of accountants under principles of accounting?

Regardless of the principles of accounting the accountant abides by, there are usually commonalities among these guidelines. Basic accounting principles generally obligate the accountant to act in good faith and engage in full disclosure of all potential issues with the entity’s finances. Accountants must offer the most realistic view of the company finances rounding figures down and anticipating potential losses. Under no circumstances should an accountant that follows conventional accounting principles overreport income or underreport expenses. Doing so will cause a financial liability for the entity that anticipated greater gains or fewer losses based on conclusions gleaned from financial statements released by the accountant.

In additions to rules on disclosure and good faith, the accountant is generally obligated under accounting principles to remain consistent on the time periods that the financial reports assess and keep the monetary amounts consistent, without accounting for inflation that would make the item or expense worth more or less at present day.