What is GAAP reporting?

“GAAP” stands for generally accepted accounting principles. Under GAAP, companies are responsible for generating reports about their profitability, cash position, and net equity. Typically, GAAP reports include three financial statements:

The balance sheet: A statement of what a company owns and how it finances its activities. The balance sheet includes assets, liabilities, and shareholder equity as of a specific date.
The income statement: A statement of revenue earned and expenses incurred during a reporting period.
The cash flow statement: A statement of the cash-in and cash-out activities of the company.

GAAP varies across geographic locations and industries, which is why IFRS came into existence. IFRS, on the other hand, promotes a single standard of reporting requirements so that investors, analysts, and external stakeholders can ensure there is a level of consistency when comparing financial information across different companies. 

This is unlike GAAP reporting entities, which may use preparation methods that differ from country-to-country and industry-to-industry. In the US, GAAP rules are created by the Financial Accounting Standard’s Board (FASB) and enforced by the Securities and Exchange Commission.

What is multi-GAAP reporting?

Some international companies operate in countries where they are subject to both IFRS and GAAP standards, which means, they need to address compliance and reporting rulings, using two sets of standards. However, the ISAB and the FASB have been working on the convergence of IFRS and GAAP. Due to this partnership, in 2007, the SEC agreed to remove the requirement for non-US companies (who are listed on the US stock exchange) to have to reconcile financial statements with GAAP if their accounts already comply with IFRS.

Using an information system to facilitate the collection and reporting of data — via multiple hierarchies — is key to managing multi-GAAP reporting. Staying on top of accounting standards updates and applying them to your reporting structure is imperative to ensure compliance with dual standards.

What’s the difference between GAAP and statutory requirements/reporting?

Statutory rules and procedures (in the US) are based on federal and state laws that govern specific industries, such as insurance. These regulations typically overlay but don’t replace GAAP. Companies that operate in a specific industry must comply with both statutory industry regulations and GAAP. For example, the insurance industry must comply with Solvency II and banks with Basel III. For global consistency, many companies have replaced GAAP with IFRS. In fact, in recent numbers released by Bloomberg, more than half of North American based companies now report their earnings according to IFRS.

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