Generally Accepted Accounting Principles (GAAP).

Generally, the guidance focuses on revenue being (i) either realized or realizable and (ii) earned. Revenue recognition is considered to involve an exchange transaction; that is, revenue should not be recognized until an exchange transaction has occurred. The discounting of revenue is required in only limited situations, including receivables with payment terms greater than one year and certain industry-specific situations, such as retail land sales or license agreements for motion pictures or television programs. When discounting is required, the interest component should be computed based on the stated rate of interest in the instrument or a market rate of interest if the stated rate is considered unreasonable.As another example of GAAP reporting, let us take accounting for income tax effects. The US GAAP model for accounting for income taxes requires companies to record deferred taxes as compensation cost is recognized. The measurement of the deferred tax asset is based on an estimate of the future tax deduction, if any, based on the amount of compensation cost recognized for book purposes. Changes in the stock price do not impact the deferred tax asset or result in any adjustments prior to settlement or expiration. Although they do not impact deferred tax assets, future changes in the stock price will nonetheless affect the actual future tax deduction (if any).Excess tax benefits (“windfalls”) upon settlement of an award are recorded in equity. “Shortfalls” are recorded as a reduction of equity to the extent the company has accumulated windfall tax benefits. If the company does not have accumulated windfalls, shortfalls are recorded to income tax expense. In addition, the excess tax benefits upon settlement of an award would be reported as cash inflows from financing activities.In 2008, the SEC issued a preliminary "roadmap" that may lead the US financial reporting to undergo an unprecedented level of change within the next several years. There is a strong belief that GAAPwill be abandoned in the future, and the widespread International Financial Reporting Standards (IFRS) will be incorporated into the financial reporting system for US domestic issuers. IFRS have been affecting US companies for some time, primarily through business dealings with non-US customers and vendors along with the continued adoption of IFRS for statutory purposes by non-US subsidiaries. Moreover, the financial crisis illustrated the interconnectedness of capital markets around the world, which underscores the imperative to achieve a common accounting language.LiteratureBrigham, Eugene F. and Houston, Joel F. (2007): Fundamentals of financial management, Mason, Ohio: Thomson/South-Western.Financial Accounting Standard Board, www.fasb.orgIFRS and US GAAP: similarities and differences: September 2010, http://www.pwc.com/us/en/issues/ifrs-reporting/publications/ifrs-and-us-gaap-similarities-and-differences-september-2010.jhtml