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Generally Accepted Accounting Principles
accounting standardsguidelines relating to the accounting treatment of the figures which are reported in the accounts of companies. They were introduced to reduce the possibility of having large variations in reported profits and to restrict the room available for manoeuvre by those charged with the task of preparing the accounts.
Prior to 1990 Statements of Recommended Practice (SORPS) and Statements of Standard Accounting Practice (SSAPS) were issued in the UK by a joint committee of the professional accounting organizations. These covered various matters, including:
Accounting policies; post balance sheet events and contingencies; earnings per share; taxation; stocks and long-term contracts; cash flow statements; research and development; and group accounts.
In 1990 the accountancy bodies set up a new organization to oversee accounting standards, the Accounting Standards Board which issued a number of statements that are now called Financial Reporting Standards (FRSS). The FRSs were drawn up to comply with both UK law, the Republic of Ireland law, and EU directives.
In recent years the International Accounting Standards Board (IASB) has overseen the development of International Financial Reporting Standards (IFRS). These standards now apply to all large quoted companies in the European Union, which from the beginning of 2005 are required to report their interim and final annual accounts expressed in terms of these standards. Application of these standards initially generate different reported profits and balance sheet asset values from those which would result from using national generally-agreed accounting principles or national financial reporting standards.
To date IFRS apply only to EU companies, and the USA, Japan and other developed countries use their own national accounting standards, though the US Financial Accounting Standards Board and the IASB are working to harmonize their rules. The goal is to produce a single set of global accounting standards to improve the transparency and consistency of financial reports.