GAAP vs. IFRS: Introduction quiz #1 Flashcards
GAAP vs. IFRS: Introduction quiz #1
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What does GAAP stand for and which organization sets these standards?
GAAP stands for Generally Accepted Accounting Principles, and it is set by the Financial Accounting Standards Board (FASB) in the USA. What does IFRS stand for and which organization is responsible for its development?
IFRS stands for International Financial Reporting Standards, and it is developed by the International Accounting Standards Board (IASB). Why is there a push to converge GAAP and IFRS into a single set of global accounting standards?
The push for convergence is due to globalization, the rise of multinational corporations, increased mergers and acquisitions, and the integration of global financial markets, all of which benefit from a single set of accounting standards. What is a key similarity between GAAP and IFRS in terms of accounting techniques?
Both GAAP and IFRS use similar basic accounting techniques, such as the journal entry system, and aim to meet the needs of investors and external users. How does the approach of IFRS differ from that of GAAP?
IFRS is more principles-based, offering more leeway in judgment, while GAAP is more rules-based with specific 'bright line' standards. What is meant by 'bright line' standards in GAAP?
'Bright line' standards in GAAP refer to specific, clearly defined rules or thresholds that must be followed, leaving less room for interpretation. How does the Sarbanes-Oxley Act affect companies using GAAP?
The Sarbanes-Oxley Act imposes additional stringent guidelines on public companies in the US, requiring stricter auditing and financial statement preparation for those following GAAP. Which set of standards, GAAP or IFRS, gives accountants more freedom in making judgments?
IFRS gives accountants more freedom in making judgments due to its principles-based approach. Why is the existence of multinational corporations a reason for converging accounting standards?
Multinational corporations operate in multiple countries with different accounting rules, so a single set of standards simplifies financial reporting and compliance. What is the main goal of financial reporting under both GAAP and IFRS?
The main goal is to meet the needs of investors and other external users by providing useful financial information. Which accounting standards are generally considered more stringent, GAAP or IFRS?
GAAP is generally considered more stringent than IFRS. What types of business organizations are recognized under both GAAP and IFRS?
Both GAAP and IFRS recognize proprietorships, partnerships, and corporations as business organizations. How does globalization impact the need for unified accounting standards?
Globalization increases international trade and investment, making unified accounting standards necessary for consistency and comparability across countries. What is the primary focus of the Sarbanes-Oxley Act?
The Sarbanes-Oxley Act focuses on increasing the reliability of financial reporting and auditing for public companies in the US. Which accounting standards are used by companies listed on US stock exchanges?
Companies listed on US stock exchanges use GAAP. What is a major benefit of having a single global set of accounting standards?
A single global set of accounting standards enhances comparability and transparency for investors and other stakeholders worldwide. How do mergers and acquisitions highlight the need for converged accounting standards?
Mergers and acquisitions between companies from different countries can be complicated by differing accounting standards, so convergence simplifies post-merger accounting. Which organization sets accounting standards for most countries outside the USA?
The International Accounting Standards Board (IASB) sets accounting standards for most countries outside the USA. What is the main difference in how GAAP and IFRS handle specific accounting situations?
GAAP provides detailed rules for specific situations, while IFRS allows for more professional judgment and flexibility. How does information technology contribute to the need for global accounting standards?
Information technology facilitates global business and financial transactions, increasing the need for consistent accounting standards worldwide. What is the role of the Financial Accounting Standards Board (FASB)?
The FASB is responsible for establishing and updating GAAP in the United States. What is the role of the International Accounting Standards Board (IASB)?
The IASB is responsible for developing and issuing IFRS for use in many countries around the world.
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