Financial Accounting and Reporting Standards (IFRS/GAAP)

01Purpose and scope

• This manual supports the course Financial Accounting and Reporting Standards (IFRS/GAAP). It describes how accountants and finance staff actually move from source transactions to published financial statements under the two main reporting frameworks in use: International Financial Reporting Standards issued by the IASB, and US generally accepted accounting principles codified by the FASB in the Accounting Standards Codification.
• The scope covers the recurring work of a reporting cycle: classifying transactions, applying recognition and measurement rules, preparing primary statements and notes, reviewing results with controllers and auditors, and documenting judgments. It does not teach the full body of either framework. Readers should treat the standards themselves as the authoritative text and use this manual as a working reference for how the pieces fit together in practice.
• Which framework applies depends on the entity, its listing status, and the jurisdiction where it reports. Some regulators require one framework, some allow choices, and some require reconciliation. Confirm the applicable basis with the reporting authority, the audit committee, or the entity's external advisers before relying on any procedure here. This guidance does not replace qualified professional judgment, approved internal procedures, or any authorization required by a regulator or by the entity's governance documents.

02Core principles

• Both frameworks are built on a conceptual framework that defines assets, liabilities, income, and expenses, and that asks whether information is relevant and faithfully represented. IFRS places more weight on principles and on judgment, while US GAAP has more detailed, industry-specific guidance. In day-to-day work, the practical difference shows up in how much written rule-matching you need to document and how much of the reasoning you must justify from first principles.
• Substance over form is a working rule in both systems. A sale-and-repurchase arrangement, a set of contract terms with side letters, or a group of entities with shared control should be judged by its economics and rights, not only by its legal label. When the economics and the legal form disagree, the accountant has to explain the difference in writing.
• Recognition comes before measurement. An item must first meet the definition of an asset or liability and the recognition criteria, which usually involve probable future economic benefits and reliable measurement. Measurement then sets the carrying amount, using historical cost, fair value, amortized cost, net realizable value, or another basis specified by the standard.
• Materiality governs how much detail goes into the statements. Information is material when omitting or misstating it could reasonably influence the decisions of users. Materiality is a judgment that depends on size, nature, and context, so a small amount can be material if it changes a covenant calculation or turns a loss into a profit.
• Consistency matters across periods. Accounting policies should be applied the same way from period to period unless a standard change or a better basis requires otherwise, and any change must be disclosed with its effect.

03Planning and preparation

• Start each reporting cycle by confirming the reporting calendar, the framework and the policy set, and the list of entities in scope. Changes in ownership, new subsidiaries, new product lines, or new financing arrangements often bring standards into play that were not relevant the period before. A short memo listing new transactions and applicable standards prevents surprises during close.
• Build a chart of accounts that maps to the primary statements and the notes. Accounts that will need separate disclosure, such as contract assets, lease liabilities, or deferred tax balances, should be separate ledgers rather than buried in a single line. Retrofitting disclosure from a coarse chart of accounts costs far more time than designing the mapping at the start.
• Prepare a close calendar that identifies the owner, the due date, and the reviewer for each reconciliation and estimate. Estimates such as expected credit losses, inventory obsolescence, warranty provisions, and impairment tests need their inputs gathered early, because the people who hold the data (sales operations, procurement, legal) rarely have it ready on the last day of the period.
• Decide early which judgments will need documentation. Typical examples are the determination of control for a consolidation, the identification of performance obligations in a customer contract, the discount rate used for a lease, and the functional currency of a foreign operation. Listing these before close allows the team to gather evidence as the year runs rather than reconstructing it afterward.
• Agree on the materiality threshold and the audit adjustment threshold with the external auditor or the reviewing controller at the planning stage. Write these numbers down. Teams that leave them implicit tend to argue about them late in the process.

04Recommended workflow

1. 1
   : Collect the transaction population for the period from the subledgers, including sales, purchasing, payroll, fixed assets, treasury, and any manual journals. Reconcile each subledger to the general ledger before doing any standards work, because a misstated input will flow through every later step.
2. 2
   : For each new or unusual transaction, identify the governing standard. Use the standard's scope paragraphs first, then its definitions and recognition criteria. Record the standard reference and a one-paragraph summary of the conclusion in the technical memo file, not only in a spreadsheet cell.
3. 3
   : Determine the unit of account and the timing of recognition. For revenue under IFRS 15 and ASC 606, which share a five-step model, this means identifying the contract, the distinct performance obligations, the transaction price, the allocation of that price, and the point or period over which each obligation is satisfied. For leases under IFRS 16 and ASC 842, it means deciding whether a contract contains a lease and, if so, what the lease term and discount rate are.
4. 4
   : Measure the item using the basis the standard requires. Fair value measurements under IFRS 13 and ASC 820 require a hierarchy of inputs, with level 1 quoted prices in active markets, level 2 observable inputs, and level 3 unobservable inputs, and the level drives the disclosure. Where the standard requires an expected loss or a present value, document the cash flows, the probabilities, and the discount rate with their sources.
5. 5
   : Post the journal entries with clear descriptions and support attached. Each manual journal should identify the preparer, the reviewer, the period, the standard supporting the entry, and the source documents. Reversing entries should be marked as such so they are not mistaken for permanent adjustments.
6. 6
   : Prepare the primary statements from the trial balance using the mapping. Check that the balance sheet balances, that the cash flow statement reconciles to the change in cash, and that the equity roll-forward agrees with net income and other comprehensive income. Each of these checks catches a different class of error.
7. 7
   : Draft the notes. Start from the disclosure checklist for the frameworks in use, then tailor the text to the entity's facts. Notes explaining accounting policies, significant judgments, and estimation uncertainty are usually the most read and the most scrutinized, so draft those with care.
8. 8
   : Circulate the draft statements and notes to the controller, the business unit finance leads, and the audit team. Track every comment in a log with an owner and a resolution, and close each item with a reference to the evidence that resolved it.

05Quality checks, risk controls and compliance

• Build reviews in layers. The preparer checks mechanical accuracy, a second person reviews the judgments and their support, and a senior reviewer tests the overall reasonableness of results against prior periods, budgets, and operating data. Analytical review is most useful when the expected relationship is written down before the actual numbers are compared. For example, revenue growth should be explained by volume and price changes that sales can confirm.
• Key controls include segregation of duties between recording and approving journals, access restrictions on the consolidation and reporting tools, and change control over spreadsheets used for material estimates. Spreadsheets that calculate impairment, lease liabilities, or deferred tax should be locked, version-controlled, and tested with known inputs whenever the formulas change.
• Measure the quality of the close with indicators such as the number of post-close adjustments, the number of days to close, the number of reconciling items older than a set age, the number of open audit comments at issuance, and the count of restatements or error corrections. Set targets internally and track them over time. Indicators without targets tend to be reported but not acted on.
• Compliance depends on the regulatory context. Public entities may face securities filing requirements, listing rules, and internal control reporting obligations that go beyond the accounting standards. Where internal control over financial reporting is assessed under a framework such as the COSO Internal Control framework, the control documentation must be maintained and tested as the regulator or the auditor requires. The specific requirements vary by jurisdiction and by filer status, so consult the current authoritative source and the entity's legal counsel.
• Financial statements prepared for lenders or under debt covenants carry their own definitions, which often differ from the reported figures. Define the covenant calculations in a schedule, reconcile them to the statements, and disclose the basis used. Where the standards and the covenant definitions conflict, the agreement usually governs the covenant, but that conclusion should be confirmed with counsel.
• Tax, payroll, and sector-specific rules sit alongside the accounting standards. Deferred tax, withholding obligations, and industry rules such as those affecting insurers or banks need specialist input. This guidance does not replace qualified professional judgment in tax, actuarial, or regulatory matters.

06Collaboration and documentation

• Financial reporting depends on working relationships with operations, legal, treasury, tax, human resources, and IT. A sales operations lead knows which contracts have unusual payment terms. A procurement manager knows when a supplier rebate program changed. Schedule short standing meetings during close and keep the agenda tied to open judgments rather than general updates.
• Technical accounting memos are the main record of significant judgments. A good memo states the facts, the question, the relevant guidance, the alternatives considered, the conclusion, and the evidence supporting each point. Date the memo and note the approvers, but keep the content focused on the reasoning so that an auditor or a successor can follow it without interviewing the author.
• Maintain a reporting package that holds the trial balance, the mapping, the journal listing, the reconciliations, the disclosure checklist, the memos, and the review sign-offs. Auditors will ask for this package in a predictable order, and assembling it as the work is done saves days of effort at the end.
• Communicate with the audit committee or board in plain language. Explain significant accounting policies, changes in estimates, areas of high judgment, and any disagreements with the auditor. Present the effect of changes in standards on the reported numbers, not only the narrative, because the people reading the report will look first at the figures.

07Measures and continuous improvement

• Review the close and reporting process after each cycle. A short retrospective that lists what slowed the close, which estimates changed most, and which journals required rework usually surfaces two or three fixes worth making before the next period. Keep the list short enough that someone owns each item.
• Track the accuracy of estimates over time. If the allowance for expected credit losses is consistently higher than actual write-offs, the model inputs or the loss rates need revisiting. If warranty provisions run short each year, the claims data and the timing of recognition deserve attention. Estimates that are regularly revised in one direction indicate a bias that should be explained or corrected.
• Monitor standard changes and interpretations. Both the IASB and the FASB publish amendments, agenda decisions, and implementation guidance. Assign someone to review these publications on a regular cadence and to assess their effect on the entity. Where a new standard takes effect, prepare a transition plan with the transition method, the data needed for comparative periods, and the disclosure changes.
• Invest in training that is tied to the entity's actual transactions. Walking through a real lease from contract to journal entry teaches more than a general lecture on a standard. Rotate staff through the close so that knowledge of the process is not concentrated in one person.

08Common mistakes and how to prevent them

• Applying a standard without reading its scope section is a frequent error. A contract may look like a lease but fall under a service standard, or an arrangement may look like a sale but include a retained right that changes the timing of recognition. Start every new item with the scope and definitions.
• Treating estimates as one-time figures instead of ranges leads to false precision. Where a range of outcomes is reasonable, document the range, the point selected, and the reason. Sensitivity analysis on the key assumptions, such as discount rates or growth rates, shows readers how much the result depends on the inputs.
• Failing to reconcile subledgers to the general ledger before preparing the statements causes errors that surface late and are costly to trace. Make the reconciliation a gate that must pass before standards work begins for that account.
• Copying prior period notes without updating them creates disclosures that no longer describe the entity. Use the prior year as a starting point, then check each sentence against the current facts and the current standard.
• Overlooking foreign currency translation, deferred tax, and related party disclosures at the end of the process is common when the close is rushed. Add these items to the checklist early and assign owners for them.
• Relying on a single person for a complex judgment is a control gap. Require a second review and keep a written record of the review.

09Practical checklist

• Confirm the applicable framework, reporting date, and list of entities in scope with the controller or audit committee.
• Reconcile each subledger to the general ledger and clear or document reconciling items before standards work begins.
• Identify new, unusual, or complex transactions and record the governing standard and the scope conclusion for each.
• Document significant judgments in technical memos with facts, alternatives, conclusion, and supporting evidence.
• Confirm the measurement basis, inputs, and fair value hierarchy level for each material estimate and fair value item.
• Prepare journal entries with preparer, reviewer, support, and standard reference shown.
• Check that the balance sheet balances, the cash flow statement reconciles to the change in cash, and equity agrees with the roll-forward.
• Complete the disclosure checklist for the frameworks in use and tailor the notes to current facts.
• Log all review comments and audit queries with owners and resolution evidence.
• Compare reported figures with covenant definitions and document any differences.
• Record close quality indicators and review them with the controller after each cycle.
• Confirm the current authoritative source for any jurisdiction-specific requirement before finalizing the statements.

★Learning sources

• Micro Degree: Financial Accounting and Reporting Standards (IFRS/GAAP)
• Micro Degree: Accounts Payable Management
• Micro Degree: Bank Reconciliation Operations
• Micro Degree: FinTech Fundamentals