IFRS or GAAP - This is one among the most heated topics in the world of accounting. Along the passing years, IFRS has gained a lot of popularity and most of the countries are adopting it over the latter. But you needn’t worry about it. Making choices is hard but by the time you finish this article you will have a clear vision about both of these systems.

What is IFRS?

It is a universally adopted method of financial reporting. Earlier it was called as international accounting standard (IAS). This standard is utilized to prepare and present the financial statement i.e. income statement, changes in equity, footnotes, balance sheet. It certifies comparability and understandability of the international business. Its sole aim is to provide its users with information related to the financial position, liquidity, and profitability of the company, performance and to help them make rational economic decisions. Today, nearly 120 countries have adopted it. Adopting IFRS has made the presentation of financial statements easier than ever

What is GAAP?

GAAP refers to the standard framework, principles, and procedures used by the various companies for financial accounting. It consists of standardized methods and rules for reporting and recording the financial data i.e. income statement, balance sheet, cash flow statement, etc. This framework is adopted by a majority of the public trade companies and private companies in the United States. This framework provides transparency and consistency in the financial statements. The information provided by this framework is of great use and is helpful for making important economic decisions by the investors, creditors, shareholders, etc.

Major differences:

• GAAP stands for generally accepted accounting principles whereas IFRS stands for international   financial reporting standard. 
• GAAP is basically a set of accounting guidelines and procedures used in preparing statements by various companies. 
• On the other hand, IFRS is a universal business language which is used by the companies while getting their financial statements recorded. 
• The Financial Accounting Standard Board (FASB) and International Accounting Standard Board (IASB) issues GAAP and IFRS respectively.
• Usage of last in first out (LIFO) is only allowed in IFRS.
• in the case of development cost, the GAAP considers it as an expense but in IFRS the cost is capitalized provided the mentioned conditions are met.
• Inventory reversal is allowed only in IFRS but only when certain conditions are met.
• IFRS and GAAP are based on principles and rules respectively.

See Also: 

Recognition and Support for the IASB

U.S. Securities and Exchange Commission Response to IFRS

Liquidity ratios play a very important role in assessing a firm’s ability to pay long-term and short-term creditors. Liquidity ratios can be used to compare a firm’s assets against its short term liabilities. This way, they will know if the firm is capable of paying all its debts, without running out of funds. Firms with very low liquidity ratios will find it difficult to meet their financial obligations. However, an increase in liquidity ratio doesn’t prove the company’s prudent nature. Liquidity ratios can help you only for a short duration. Here are reasons why rising liquidity ratios cannot prove a sign of presidencies.

The Implications And Differences In Liquidity And Solvency Ratios

Companies offer entrepreneurs with several advantages as well as safeguarding from the legal responsibilities & the chance to effortlessly transfer a possession interest. But as a business owner, you must preserve the corporate formalities so that you can have the utmost benefits. This signifies that your business must function as a detached unit or an organization. You must adhere to the set of laws which is applicable to all business. You must conduct periodic meetings and take minutes when the meeting happens. But as a directly held company or a small business, you may speculate how often a business corporation hold minutes & update the minutes.

Proper auditing

If you desire to run your business as a corporation, then you must organize regular meeting and update minutes failing to do so will lead to legal problems that your company is not properly audited. To avert these problems you can have the assistance of leading corporate attorneys who can help your business with the procedure of how often a business corporation hold minutes by setting up an agenda for meetings and explicate the necessities for taking the minutes.

When you must conduct meetings & update the minutes?

When you at first set up your business, you must organize an initial meeting for electing the officer, issue shares & set up the corporate bylaws. When you conduct your initial meeting you must take minutes and keep a record of what happened during the meeting & the important decisions that were taken.

After the initial meeting, and when your company is functioning, there must be a yearly Board of Directors meeting. Doesn’t matter, if you happened to be the sole owner and the one to take part, this must occur.

Annual meetings

At every yearly meeting, the minutes must be taken by the Secretary so as to document the events that took place in the meeting. If you own and operate a business, then you might be the President, Vice-President & Secretary. This signifies that you must call the meeting, organize, and take the minutes. The officer should be again re-elected to their position at the yearly meeting. This is rule is applicable even if you are the sole person to occupy all these positions. Apart from the yearly meeting, you must conduct meetings and take minutes whenever you hire or fire an employee, acquire any corporate real estate or machineries.

Hope this article was of some use in explaining the process on how often a business corporation hold minutes and thereby improves your business in a lawful manner.

Accounting practices follow certain rules. The set of rules and procedures that constitute acceptable accounting practice at a given time is GAAP, which stands for generally accounting principles. In order to generate information that is useful to the users of financial statements, accountants rely upon the following principles below:

Objectivity Principle - Accounting records and statements are based on the most reliable data available so that they will be as accurate and as useful as possible. Reliable data are verifiable when they can be confirmed by independent observers. Ideally, accounting records are based on information that flows from activities documented by objective evidence. Without this principle, accounting records would be based on whims and opinions and is therefore subject to disputes.

Historical cost - Principle states that the acquisition of asset should be recorded at its actual cost and not what the management think about of its worth at reporting date Revenue Recognition Principles - in this state revenue is recorded when goods are delivered or the services has been performed or rendered

Adequate Disclosure - its means that all vital accounting information that affect the understanding of accounting firm should be disclosed on the financial statement Materiality -

Materiality - depends on the size and nature of the item judged in the particular circumstances of its exclusion. In deciding whether an item or an aggregate of items is material, the nature and size of the item are classify together. Depending on the status of its nature, either the size of the item could be the determining aspect.

Consistency Principle - Compnay should use same accounting approach from period to period to meet the compatibility over time within a single enterprise. Nevertheless, changes are permitted if justifiable and disclosed in financial statements.



SEE ALSO:
Accounting Basics 

General Accounting along with its Reporting

Understanding About Accounting Basics

Have you ever wondered that why these cancer drugs are so expensive? A breast Cancer drug named Kadcyla has been recently developed which may cost $90,000 per patient per year. We usually assume that the anti-bodies or other elements which have been used to manufacture these drugs are really expensive; in short we assume that manufacturing cost of these drugs is really high.However, in reality this does not happen at all and it is a small part of trick being played by the management of these companies.

These drugs are discovered after lots of research and development done in their labs and hence a huge amount of costs or overheads are involved in this section. In order to compensate forthese overheads, the prices of such drugs are inflated.

Now, Pharmaceutical companies can usually charge such amount over the span of 20 years because this is the usual tenure of their patent and then after this period is over, any other company can copy the compound and deliver the same at much cheaper price. In other words, any pharmaceutical company can monopolize the market for the span of 20 years but that’s not it, they try their best to extend this period of monopoly by using some other trick too.

The famous concept of Evergreening is used when a company wants to increase the protection of the patent or the monopoly tenure into the market. The elements used to create that compound (drug) are tweaked a little and thus the new compound, which is just different in terms of nomenclature (but carrying the same properties of the previous compound), is submitted again in the form of a patent. This is the best way to manage their markets when a company has invested a lot in the Research and Development of that drug.

This kind of practice are mostly performed in case of life-saving drugs, reason being that their sale is already infrequent and the high cost of these drugs adds more to it. Hence, monopoly of 20 years is not enough. Please note that in most of the countries like Korea, Canada, Australia and India, this is being opposed but then it is difficult to take a stringent against it because anything this may discourage these companies to innovate. They use such methods to maximize their profits and this is the same reason due to which they innovate.

Managing the medical markets is not conventional as compared to other industries because here you are dealing with the lives of people and thus any selfish step taken by the management would rip off the reputation of the market which can be followed by lots of CSR (Corporate Social Responsibilities) activities. Hence, this concept can be used but it is best if it is not being used on life-saving drugs.

As an auditor, we would examine the nature with the legal expense even though it can be not materilized / substantial in the audit engagement perspective from review of legal expenses.

The rationale will be to examine the nature with the expense incurred and to look for any outstanding litigation against the firm, or the business is involving in any legal circumstances. Because the damages for litigation may very well be tremendous, and necessary to become disclosed towards the financial statement end users.

Therefore, thorough examination is expected.

However, ' Legal Confirmation' may very well be sent for the client's lawyers to confirm if there is certainly any on-going legal circumstances against the firm.

See Also:

• Drawing the legal lines among private and public charities 
• The legal obligations of directors

 

Section 501(n): Charitable risk poolsSection 501(n) delivers an exemption for charitable risk pools, that are entities organized and operated solely to pool insurance coverage dangers of its members (aside from dangers connected to medical malpractice) and to supply its members with information and facts regarding loss manage and threat management. All members will need to be tax-exempt charitable organizations.
 

Section 521(a): Farmers’ co-ops
Section 521(a) delivers an exemption to farmers’ cooperative associations. Farmers’ cooperatives are associations of folks that give their members a spot to market place their solutions. These organizations are organized and operated on a cooperative basis for the goal of promoting the solutions of members. They return the proceeds of sales much less operating expenditures to their members on the basis of either the quantity or the worth on the solutions furnished by them, or for getting supplies for the use of members and turning
more than the supplies and gear for the members at actual expense plus expenditures.

Section 501(f) delivers the exemption for cooperative service organizations that happen to be operating educational organizations. These cooperative organizations are regarded as charitable organizations, that happen to be organized and controlled solely by members that come about to become private or public educational institutions.These organizations are organized and operated solely to hold, commingle, and collectively invest and reinvest in stocks and securities contributed by every single member on the organization and to gather the revenue from these investments and turn it more than for the members.
 

Section 501(k): Youngster care
Section 501(k) delivers the exemption for youngster care organizations. The exemption applies exactly where substantially all the care offered by the organization is for the goal of enabling folks to become gainfully employed. The solutions offered by the organization will need to be out there for the common public. In other words, if a youngster care facility delivers preference for the young children of personnel of a distinct employer, it does not qualify for the exemption.

Section 501(e) delivers an exemption for organizations that execute cooperative solutions for hospitals. These organizations are essential to become organized and operated solely for two or extra exempt hospitals and will need to be organized and operated on a cooperative basis (which means one particular member, one particular vote and sharing in income depending on the level of business enterprise performed with all the cooperative,
as an alternative to on ownership interest). They frequently execute solutions, which include processing, billing, laboratory solutions, printing, and related solutions,
for their members.
 

Section 501(f): EducationSection 501(f) delivers the exemption for cooperative service organizations that happen to be operating educational organizations. These cooperative organizations are regarded as charitable organizations, that are organized and controlled solely by members that happen to be private or public educational institutions. These organizations are organized and operated solely to hold, commingle, and collectively invest and reinvest in stocks and securities contributed by every single member on the organization and to gather the revenue from these investments and turn it more than for the members.

Despite the fact that Internal Income Code 501(c) delivers by far the most usually recognized tax exemptions, other subsections on the Internal Income Code deliver that the revenue of specific organizations is usually tax exempt.

Section 501(d): Relief for religious and apostolic associations
Section 501(d) on the Internal Income Code delivers an exemption for religious and apostolic associations which have a popular treasury or community treasury, even though they’re engaged in business enterprise for the popular benefit on the members. If this can be the situation, having said that, the members will need to include things like in their gross revenue their pro rata shares of taxable revenue on the association for the year.
 

The notion of a popular treasury or community treasury refers for the property of such organizations as not getting held by members individually, but rather within a community capacity with all members possessing equal interests in the property. This requirement is happy when all of the revenue generated by the community-operated business enterprise and from the property owned by the business enterprise is placed into a community fund maintained by the organization and made use of for the upkeep and help of its members.
This separate exemption exists for the reason that apostolic organizations weren’t identified to qualify for tax-exempt status beneath the common religious organizations exemption (mainly for the reason that on the presence of community activities and private positive aspects). This exemption is seldom utilized by organizations.

501(c)(27): Worker’s compensationSection 501(c)(27) delivers the exemption for state-sponsored worker’s compensation reinsurance organizations. These organizations are formed to reimburse members for losses arising beneath worker’s compensation acts. Membership in these organizations frequently consists of all persons who situation insurance coverage covering workers compensation lawsuits, at the same time as governmental entities who self-insure against such losses.
 

501(c)(28): Railroad retirementSection 501(c)(28) delivers the exemption for the National Railroad Retirement and Investment Trust as established by the Railroad Retirement Act of 1974.

Section 501(c)(24) delivers an exemption for trusts established for specific employee benefit plans beneath the Employee Retirement Revenue Security Act of 1974, which include 401(k)s, profit sharing plans, or other retirement plans.
 

501(c)(25): Title holding corporations
Section 501(c)(25) will allow an exemption for title holding corporations. A title holding corporation is organized exclusively to hold title to property, gather revenue from that property, and turn that revenue more than to one particular or extra tax exempt organizations. To become eligible, the corporation can haven't extra than 35 shareholders or beneficiaries and only one particular class of stock or effective interest.
 

501(c)(26): High-risk insurance coverage
Section 501(c)(26) delivers the exemption for state-sponsored organizations delivering healthcare coverage for high-risk folks. These organizations deliver medical care coverage on a nonprofit basis to its members by means of insurance coverage or an HMO. The folks receiving the care will need to be residents of the state sponsoring the organizations, plus the state specifies the composition of membership.

Section 501(c)(21) delivers the exemption for black lung benefit trusts, which are self-insurance applications for coal mine operators. These applications deliver sufficient worker’s compensation coverage for liability that may perhaps be incurred because of this of disability or death as a consequence of black lung ailments (these ailments induced by the inhalation of coal dust).
 

501(c)(22): Employer withdrawal liability payment fundsSection 501(c)(22) will allow an exemption for trusts that happen to be formed to administer withdrawal liability payment funds. These trusts deliver funds to meet the liability that an employer may perhaps incur from withdrawing from a multiemployer
pension fund.
 

501(c)(23): Pre-1880 veterans’ organizationsSection 501(c)(23) delivers an exemption for veterans’ organizations made ahead of 1880. This exemption was established by Congress in 1982. To become eligible for this exemption, an organization has to have already been formed ahead of 1880, and extra than 75 percent of its members has to be present or past members on the Armed Forces. The organization will need to also deliver insurance coverage or other positive aspects to such veterans or their dependents. An instance of a 501(c)(23) organization is definitely the Navy Mutual Help Association.

501(c)(20): Group legal service plans
Section 501(c)(20) allows an exemption to an organization or trust that forms
part of a qualified group legal services plan. Basically, a group legal services
plan is sponsored by an employer for the exclusive benefit of its employees,
spouses, or their dependents, and it provides certain prepaid personal legal
services.
501(c)(21): Black lung benefit trusts
Section 501(c)(21) provides the exemption for black lung benefit trusts, which
are self-insurance programs for coal mine operators. These programs provide
adequate worker’s compensation coverage for liability that may be incurred
as a result of disability or death due to black lung diseases (those diseases
caused by the inhalation of coal dust).

501(c)(18): Pension trusts Section 501(c)(18) delivers the exemption for employee-funded pension trusts made ahead of June 25, 1959. This provision has restricted application, and applies for the payment of positive aspects beneath a pension program that is funded by personnel or trusts that happen to be made ahead of June 25, 1959.

501(c)(19): Armed ForcesSection 501(c)(19) delivers the exemption to get a post or organization of past or present members on the U.S. Armed Forces. These organizations are commonly known as veterans’ organizations, which has to be operated exclusively to accomplish the following:

Section 501(c)(15) delivers the exemption for mutual insurance coverage providers that deliver insurance coverage to members substantially at expense. In an effort to be a mutual organization, the insurance coverage company’s policyholders will need to be members possessing a popular equitable interest inside the organization and they've to manage the provider. Lots of smaller sized insurance coverage providers are organized as 501(c)(15) nonprofits.

501(c)(16): Crop cooperatives
Section 501(c)(16) delivers the exemption for cooperative organizations that finance crop operations. These corporations are organized by an exempt farmers’ cooperative or its members to finance their ordinary crop operations. These organizations may perhaps situation capital stock (stock that evidences ownership) beneath specific situations, and may perhaps also accumulate a affordable reserve for future operations. It may perhaps also personal all of the stock of a further business enterprise corporation.

501(c)(13): Cemeteries
Section 501(c)(13) will allow a tax exemption for cemetery providers. These providers has to be owned and operated exclusively for the benefit of their members on a not-for-profit basis. The members on the cemetery providers are people that personal the lots and hold them for burial purposes, not for resale.
 

A tax exemption beneath this section also applies to corporations that happen to be organized solely for the goal on the disposal of bodies by burial or cremation (provided that the organizations do not engage in business enterprise that is not necessarily incident to that goal). Earnings of those organizations may perhaps only be made use of to spend expenditures of operating, preserving, and enhancing the cemetery or crematorium, to buy cemetery property, or to make a fund to supply revenue for the care of a cemetery.
 

501(c)(14): Credit unions
Section 501(c)(14) will allow an exemption for state-chartered credit unions and mutual reserve funds. This exemption applies to credit unions devoid of capital stock that happen to be organized and operated to get a mutual goal on a nonprofit basis. Mutual organizations formed ahead of September 1, 1957, that deliver insurance coverage for shares or deposits are also exempt beneath this section. Your neighborhood credit union is probably a 501(c)(14) organization.

501(c)(12): Insurance coverage associations
Section 501(c)(12) delivers the exemption for organizations like benevolent life insurance coverage associations, mutual ditch or irrigation providers, and mutual or cooperative electric, water, or telephone providers. Eighty-five percent or extra on the revenue that these organizations produce consists of revenue from members. Popular to all of those entities is definitely the conduct of an activity of a mutually effective nature.

A benevolent life insurance coverage association is one particular that is operated to supply life insurance coverage coverage to members at expense. Having said that, the hitch is the fact that they’re confined to a specific community, spot, or district. Mutual ditch or irrigation providers are these that operate irrigation systems for the use and benefit of their members.

Section 501(c)(9) delivers an exemption for voluntary employee beneficiary associations, that are also referred to as VEBAs. This sort of association delivers for the payment of life, wellness, accident, or other positive aspects for the members on the association or their dependents or designated beneficiaries. A VEBA has to be organized for an association of personnel, frequently employed by a popular employer or affiliated employers. Within a typical VEBA arrangement, an employer will establish a VEBA as a trust for the goal of funding wellness positive aspects or even a self-insured wellness program. The employee members will need to possess a commonality of interest and membership has to be voluntary.

 

501(c)(10): Fraternal societies
Section 501(c)(ten) delivers the exemption for domestic fraternal societies. Fraternal beneficiary societies are addressed in Section 501(c)(eight) as fraternal organizations that deliver for the payment of specific positive aspects for the organization’s members or dependents. A domestic fraternal society, on the other hand, is often a fraternal organization that operates beneath a lodge process that devotes its net earnings exclusively to religious, charitable, scientific, literary, educational, and fraternal purposes. In other words, it does not deliver positive aspects to its members. Having said that, it may perhaps procure insurance coverage from many providers to supply optional positive aspects to its members. In an effort to qualify as a fraternal organization, there has to be a popular objective, profession, or other hyperlink amongst the members. A well known instance of a 501(c)(ten) organization is definitely the Ancient Order on the Nobles on the Mystic Shrine, which can be the fundraising arm for the Shriners Hospital for Young children.