In this era of globalization, businesses should endeavor to prepare their financial statements correctly and timely. They should also make sure that everyone around the world can read their financial statements and compare them to those of other businesses.
To ensure this, all companies must prepare their financial statements with the same accounting standards. GAAP comes into play in this situation. GAAP is the standard for preparing financial statements.
Many people often use the terms GAAP and GAAS synonymously. However, this is incorrect because they are highly dissimilar and have different meanings. Therefore, it is important to understand the differences between GAAP vs. GAAS.
GAAP vs GAAS: Meaning
What is GAAP in accounting?
The acronym GAAP means Generally Accepted Accounting Principles. It is a set of commonly used accounting guidelines. GAAP was established to ensure transparency and consistency in preparing financial statements from one company to another.
What does GAAS mean in accounting?
GAAS stands for Generally Accepted Auditing Standards. They are auditing guidelines designed to help auditors ensure fair, transparent auditing. The GAAS standards help auditors to prepare a reliable and transparent audit report on behalf of the companies.
Furthermore, using GAAS ensures high quality auditing, and reports from different auditors can be compared. The GAAS grant auditors a level of independence, despite acting as guidelines. In essence, it outlines the steps auditors must take to audit a company.
Overall, we can state that GAAS helps to retain auditor professionalism and ensures that audit reports are transparent and objective.
Since you are now familiar with the definitions, let's see the differences between GAAP and GAAS.
GAAP vs GAAS: Differences
The differences between GAAP vs GAAS are stated below:
The main purpose of establishing GAAP is to help accountants prepare financial statements for companies. In addition, companies must use GAAP to develop their accounting policies and record daily transactions.
The main purpose of establishing GAAP is to help businesses prepare their financial statements. In addition, companies must use GAAP to develop their accounting policies and record daily transactions.
On the other hand, the primary functions of GAAS is to assist auditors in conducting effective company audits, ensuring that reports are complete and accurate, and spotting frauds.
The GAAP contains regular guidelines and conventions, including those for preparing financial statements. On the other hand, GAAS has three groups of 10 standards that describe how to review financial statements.
The three groups work together to review the firm's accounting and reporting standards
GAAP comes before GAAS in the process of preparing financial statements. This is because the accountant must first prepare the financial statements in accordance with GAAP. Auditors can begin their audit of the financial statements using the GAAS standards only after the financial statements have been completed.
Furthermore, GAAP continues to benefit businesses throughout the accounting year. However, GAAS is only useful at the end of the accounting year or when a company wants to audit their financial statements.
GAAP is most helpful to accountants for doing accounting tasks. In contrast, GAAS is largely useful to auditors. The firm accountants can assist the auditors if they discover any discrepancies, disputes or if they simply need clarification.
The financial statements can only be submitted to auditors for review after being prepared by accountants using GAAP. Third parties are only given access to the financial statements following auditor permission. These third parties may be investors, stockholders, creditors, or financial institutions.
GAAP and GAAS are both of utmost importance to the accounting industry. Financial statements are prepared using GAAP, and they are then verified using GAAS. These two accounting concept can be said to compliment one another. If you are struggling with your accounting assignments, you can send your "do my accounting homework" request to experts to get instant help.
If a company prepares its financial statement in accordance with GAAP, it will be easier for auditors to audit and verify it based on GAAS. Furthermore, it may be challenging for auditors to examine the GAAP-based statements if they don't adhere to GAAS rules.
We can conclude that GAAP and GAAS combined simplify life for businesses, investors, and all other stakeholders.