Accounting compliance means following the laws, regulations, and standards that apply to a company's financial reporting. It involves having clear and transparent processes and procedures for recording and verifying all financial transactions, such as revenue, expenses, assets, and liabilities. Accounting compliance helps ensure accuracy, relevancy, security, and accountability in a company's financial matters
Staying compliant with accounting standards and government regulations has a number of key business benefits.
·It demands a reliable and robust system for financial tracking and reporting.
·Greater transparency enables businesses to spot financial irregularities sooner.
·The right processes can help mitigate the risk of penalties for noncompliance.
·Ensuring compliance in accounting helps your business avoid potential legal issues.
·A streamlined, efficient compliance process saves time and therefore money.
·The risk of breaches which bring potential fines, business interruption and the indirect cost of reputational damage is minimized.
What are some examples of compliance standards?
In accounting, a compliance standard is a set of policies and rules that help companies maintain relevancy and accuracy.
·Generally accepted accounting principles (GAAP) are standards that encompass the details, complexities, and legalities of business and corporate accounting.
·GAAP has three primary sets of rules with which you must comply.
·Basic Accounting Principles include Economic Entity Assumption, Monetary Unit Assumption, Time Period Assumption, Cost Principle, Full Disclosure Principle, Going Concern Principle, Matching Principle, Revenue Recognition Principle, Materiality Principle and Conservatism Principle.
·Compliance standards protect a company’s security.
·Of course, standards are only practical when they are observed and enforced.
·International Financial Reporting Standards. It is a set of accounting standards developed by the International Accounting Standards Board (IASB) that companies use to prepare and publish their financial statements. IFRS provides a common language for business affairs so that company accounts are understandable and comparable across international boundaries.
Here are some benefits of using IFRS:
·Global comparability: IFRS provides a common language for business affairs so that company accounts are understandable and comparable across international boundaries.
·Investor confidence: IFRS provides investors and analysts with a cohesive view of company finances.
·Improved transparency: IFRS requires companies to provide more detailed information about their financial position and performance.
·Better access to capital: IFRS can help companies attract investment from foreign markets by providing a standardized financial reporting framework.
·Reduced costs: IFRS can help companies reduce the cost of preparing and auditing financial statements by providing a single set of accounting standards.
Why was IFRS created?
IFRS was created to provide a single set of high-quality, globally accepted accounting standards that companies could use to prepare their financial statements. The goal was to make it easier for investors and analysts to compare financial statements across international boundaries and to improve transparency and accountability in financial reporting.
Here are some differences between GAAP and IFRS:
·Scope: GAAP is used primarily in the United States, while IFRS is used in more than 110 countries around the world.
·Rules-based vs. principles-based: GAAP is rules-based, meaning that it provides specific guidelines for accountants to follow when preparing financial statements. IFRS is principles-based, meaning that it provides general principles and guidelines for accountants to follow.
·Inventory valuation: GAAP allows companies to use either the first-in, first-out (FIFO) or last-in, first-out (LIFO) method to value inventory. IFRS requires companies to use the FIFO method.
·Research and development costs: GAAP allows companies to capitalize research and development costs under certain circ*mstances. IFRS requires companies to expense all research and development costs as incurred.
·LIFO reserve: GAAP requires companies that use the LIFO method to maintain a LIFO reserve account on their balance sheet. IFRS does not require this.
