Accounting standards have a long tradition. As early as 5,000 years ago, merchants in Egypt and Mesopotamia organized their business using an ancient version of financial statements and accounts. In the Roman Empire, bankers were obliged to use systematic accounting. Even double-entry accounting, the most commonly used system of commercial business income and expenditure recording today, found its origins in 17th century northern Italy.
In the States, accounting standards were first introduced by the American Institute of Accountants (AIA) in the 1930s. After the global economic crisis of the 1920s and the stock market crash of 1929, the overly lax accounting practices of many businesses shouldered a lot of the blame. Without strict standards of financial presentation, companies could manipulate their reports to suit whatever needs they had, making their finances appear in better shape than they actually were. The Securities and Exchange Commission (SEC) began enforcing legislation for public companies with the Securities Act of 1933 and the Securities Exchange Act of 1934. Accounting standards in the US are now monitored by the FASB, an independent organization that is responsible for setting accounting standards for public companies in the US.
While the accounting principles contained in the US GAAP only apply to US companies, there are national accounting principles in Canada, France, Germany, the UK, China, India, Nepal, and Russia. Though there is some overlap (for example, Germany has voluntarily signed the US GAAP in addition to their own standards), principles are only really applied to domestic business. Any companies doing business with or from foreign nations typically apply international accounting standards, such as the IFRS format.
The application of the IFRS standards is much less prevalent in the US, however. While public companies are required to uphold US GAAP standards, private companies are allowed to choose their own accounting methods and there are no laws in place requiring the application of IFRS standards. IFRS is also only required for the consolidated accounts of EU listed companies and any companies not included in that population are only subject to national standards.
While operating according to IFRS is generally all that’s required for conducting foreign business, the following table will provide a quick overview of the national accounting standards for the DACH countries (Germany, Austria, and Switzerland) as well as the other major players in Europe: the UK, France, Spain, and Italy.