Generally accepted accounting principles, or GAAP, are standards that encompass the details, complexities, and legalities of business and corporate accounting. The Financial Accounting Standards Board (FASB) uses GAAP as the foundation for its comprehensive set of approved accounting methods and practices.
GAAP incorporates three components that eliminate misleading accounting and financial reporting practices: 10 accounting principles, FASB rules and standards, and generally accepted industry practices.
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These components create consistent accounting and reporting standards, which provide prospective and existing investors with reliable methods of evaluating an organization's financial standing. Without GAAP, accountants could use misleading methods to paint a deceptive picture of a company or organization's financial standing.
The Great Depression in 1929, a financial catastrophe that caused years of hardship for millions of Americans, was primarily attributed to faulty and manipulative reporting practices among businesses. In response, the federal government, along with professional accounting groups, set out to create standards for the ethical and accurate reporting of financial information.
Small businesses may also struggle with implementing GAAP. These standards may be too complex for their accounting needs, and hiring personnel to create GAAP definition reports can be expensive. As a result, the FASB works with the Private Company Council to update GAAP with private company exceptions and alternatives.
Since the U.S. does not fully comply with IFRS, global companies face challenges when creating financial statements. Even though the FASB and IASB created the Norwalk Agreement in 2002, which promised to merge their unique set of accounting standards, they have made minimal progress. In an effort to move towards unification, the FASB aids in the development of IFRS.
The FASB and IASB want to merge their standards because they share the goal of pursuing accounting integrity. While each financial reporting framework aims to provide uniform procedures and principles to accountants, there are notable differences between them.
Sri Lanka Accounting and Auditing Standards Monitoring Board (SLAASMB) established under Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, is Sri Lanka's independent regulator responsible for monitoring compliance with standards in accounting and auditing, in relation to financial statements of entities specified in the act.
In many cases, a user of financial statements will lack the information necessary to make specific adjustments required to achieve comparability between companies that use IFRS and companies that use US GAAP. Instead, an analyst must maintain general caution in interpreting comparative financial measures produced under different accounting standards and monitor significant developments in financial reporting standards.
Quality accounting systems improve government accountability to its citizens and serve the needs of government decision-making (Opanyi, 2016; Oulasvirta, 2014). Therefore, over the past decades, there have been tremendous efforts to modernised and strengthen the public sector accounting system (Lapsley & Miller, 2019; Mügge & Stellinga, 2015; Tran et al., 2021). One such effort is the development and application of International Public Sector Accounting Standards (IPSAS) (Brusca & Martínez, 2016). According to the International Federation of Accountants (2018), IPSAS as a set of high-quality standards improves governance quality because it increases transparency and accountability in managing public resources (Bakre et al., 2017). Following these perceived benefits, international organisations such as the World Bank, International Monetary Fund, and the United Nations are promoting the adoption of IPSAS as means of improving governance and accountability in the public sector (Bakre et al., 2017).
Second, by using a large sample, more extended period and updated data, our study provides more precision and reliable results on the effect of IPSAS on quality of governance. Moreover, we extend existing studies to cover developing countries where the adoption of international accounting standards appears relevant and fast-growing. We also provide empirical evidence to show that developing countries are likely to benefit more from the adoption of IPSAS compared to OECD countries. This piece of evidence is relevant to international financial institutions such as the World Bank and IMF who are pushing for the adoption of IPSAS in developing countries (Adhikari et al., 2015; Bakre et al., 2017).
Third, our additional analysis between accrual and cash-based IPSAS provides new evidence that the ultimate adoption of accrual-based IPSAS will enhance governance quality compared to cash-basis. This line of investigation has not been established yet in the literature. This study also adds to the discussion on the contribution of accounting standards to economic development.
Despite these perceived benefits associated with IPSAS as a driver of good governance, some features of the standards are likely to weakened governance. For instance, Bakre et al. (2017) argue that government officials can use historical cost accounting under IPSAS to legitimised corruption and patronage in the sale of public properties. Similarly, Grossi and Steccolini (2015) submit that the adoption of IPSAS may not ensure the expected discourse and hence may not improve governance quality. Some scholars also argue that IPSAS is vague with no detailed guidelines (Agasisti et al., 2015; Bakre et al., 2017; Oulasvirta, 2014; Schmidthuber et al., 2020) and this vagueness can lead to abuse of discretional measurement at the advantage of politicians and government officers. Agasisti et al. (2015) report that IPSAS does not provide detailed guidelines that overcome the recognition and valuation challenges in public sector accounting.
Some prior studies assert that developed countries already have robust institutional structures such as high-quality domestic standards, hence the adoption of international standards including IPSAS will not yield significant outcome (McSweeney, 2009; Sikka, 2015). However, other scholars argue that the existence of quality institutional structures in developed countries help these countries benefit more international accounting standards than developing countries(Ball, 2006; Daske et al., 2008). Specifically, international standards are seen as complex standards developed by developed countries for developed countries (Bova & Pereira, 2012).
Table 4 contains the estimation for testing H1. As robustness, we present the results on the alternative measurement of governance quality, including the sub-categorisation of the WGI. The results in all the columns show that IPSAS has a positive and significant influence on governance quality. The results, therefore, suggest that countries that have adopted IPSAS experience increase in the quality of governance. This is consistent with the assumption that IPSAS is a set of high-quality accounting standards that improve disclosures, comparability, and decision-making in the government (Bakre et al., 2017; International Federation of Accountants, 2008, 2018; Schmidthuber et al., 2020). These attributes translate into accountability and transparency between the government and its citizen, thereby increasing governance quality. High-level disclosures and comparability of IPSAS financial information attenuate the information advantage politicians and government officers have over the citizens. In effect, citizens are likely to get more relevant and reliable information from financial statements prepare per IPSAS than domestic standards. Such information improves the monitoring of government officials as well as improve the decision-making of government agencies.
As with many studies on the consequence of international accounting standards (Cuadrado-Ballesteros & Bisogno, 2020; Cuadrado-Ballesteros et al., 2019), the measurement of IPSAS adoption may be cruel, because it might not capture the process of adoption as well as the year to year adoption strategies. However, given the available data and the fact that our coding is consistent with prior studies (Cuadrado-Ballesteros & Bisogno, 2020; Cuadrado-Ballesteros et al., 2019), we are convinced that our findings are robust.
The purpose of this review is to explore various approaches and perspectives that are currently being used by empirical studies reporting the impact of IFRS adoption in different jurisdictions around the globe. For this purpose to be better served, this study also presents at the outset an overview of the scope, objectives and current adoption status of IFRS. This study reviewed the literature on classifications of IFRS adoption studies with the view of deducting methodical frameworks outlining the dimensions that may warrant investigation for IFRS to be consented as a set of quality and global accounting standards. This study concludes that the success of IFRS as an international accounting standard depends on one hand in its technical quality economically yielding to both users and reporters of financial statements and on the other hand their acceptance across different jurisdictions despite their political, cultural and economic diversities.
This assessment of public sector accounting and auditing is generally meant to assist with the implementation o f more effective Public Financial Management (PFM) through better quality accounting and public audit processes in Sri Lanka. Following the introduction, and chapters on public sector accounting and auditing, Annex A explains the methodology used for the study. Annex B provides a summary of accounting and auditing standards referred to in this study. Annex C and D provide Sri Lanka accounting and auditing legislation, respectively. Lastly, Annex E includes a description of the benefits of accrual accounting. 2ff7e9595c
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