Guide to accounting and reporting standards

In a previous article, we covered South Africa’s professional accounting organisations (PAOs), their respective professional designations and the finance and accounting courses that are required for each. These PAOs are responsible for holding their members to certain ethical, academic and professional standards in their work.

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Now we will look at both local and international financial and reporting standards that accountants are expected to comply with. We will also look at the international and local accounting boards that are responsible for maintaining them.

Anyone considering studying a degree in accounting, such as BCom accounting or another finance or accounting course, should know what these standards are. If you have a particular topic or question, please use the article outline and frequently asked questions below to jump to the relevant section.




We live in an incredibly diverse world, with a multitude of differing cultures, languages and ideas of what we view as normal. In the world of accountancy and finance, however, there must be commonly shared standards for financial reporting.

The International Financial Reporting Standards (IFRS) were set up to give a globally recognised set of standards and accounting rules for how businesses record and report transactions and financial statements. Adherence to IFRS ensures that financial statements are consistent, comparable and transparent across the world.

The responsibility of setting these standards falls under the IFRS Foundation, which is a not-for-profit, public-interest organisation that was set up to develop and maintain these standards. The IFRS in turn has two standards-setting boards that develop these standards – the International Accounting Standards Board (IASB) and International Sustainability Standards Board (ISSB).

The International Accounting Standards Board is made up of an independent group of accountancy experts who are responsible for setting and developing the accounting and reporting standards for the IFRS Foundation. Members of the IASB are selected through an open process and must adhere to the IFRS Foundation Constitution, which requires among other things that members be drawn from diverse geographic locations. The IASB was founded in 2001 to replace the International Accounting Standards Committee.

The International Sustainability Standards Board is a much more recent addition to the IFRS Foundation, having been set up in 2021-22. The ISSB’s mandate is to create and develop sustainability-related financial reporting standards.


Countries required to use IFRS for domestic public companies


The IFRS Foundation has built up and developed profiles in 167 countries or jurisdictions across the world. According to the IFRS Foundation’s analysis of those 167 countries, 146 jurisdictions (87 percent) require IFRS accounting standards for all or most domestic publicly accountable entities.

As this is an overwhelming majority of the world, it will be easier to list those countries that do not adhere to IFRS. Some do utilise IFRS but do not enforce its use on domestic companies. Some instead use their own set of accounting standards. For a detailed breakdown, you can check the IFRS website’s list of countries using IFRS standards.

In much the same way that the US still sticks to imperial measurements while all but two other countries across the world use the metric system, so too does the US not adhere to IFRS. Instead, the US has its own set of standards. US companies are governed by a system known as the Generally Accepted Accounting Principles (GAAP), which we will come to a little later. The other five countries or jurisdictions that do not use IFRS for domestic public companies are Bolivia, China, Egypt, India and Macao SAR.


Financial accounting scandals by public companies defying IFRS standards

Many of the largest accounting scandals by public companies in recent years have originated in the US, which is unsurprising given the size of the US stock exchange. However, the US does not require its publicly listed companies to comply with IFRS, preferring its own set of rules called the Generally Accepted Accounting Principles (GAAP). We’ll cover GAAP-related accounting scandals further down, but for IFRS-related scandals, we must look at other countries.


Tesco in the UK


One of the largest recent accounting scandals in the UK centred around supermarket chain Tesco. The retail group admitted to overstating profits in 2014, first by £250-million and later revising the figure to £326-million. This profit overstatement wiped £2-billion off the supermarket’s share price in one day.

As a result, Tesco suspended eight directors and the Serious Fraud Office (SFO) charged three former executives with fraud. The prosecution accused the executives of concealing the true financial position of auditors and other employees, driven by a motive to support the share price and secure larger compensation packages. After a lengthy investigation, it was ordered to pay £235-million in penalties and compensation to investors.


Steinhoff International in South Africa

South Africa has also had its share of accounting scandals. The largest recent scandal, and possibly the largest in South Africa’s corporate history, was the Steinhoff scandal. A 2019 auditor report found that the company had overstated profits by $7.4-billion as a result of accounting fraud by a small group of top executives and outsiders from 2009 to 2017.

The irregularities first came to light in December 2017 and the company lost R216-billion in share value by the time of the auditor report in March 2019. As Steinhoff was one of the larger companies on the JSE, its shares were held by many large investment institutions including pension funds, which all suffered big losses from the stock price collapse.

The report found that Steinhoff had recorded fictitious or irregular transactions over those years, which substantially inflated the group’s profit and asset values. The scandal resulted in a swathe of executive resignations and a fine of R24-billion, along with other penalties and executive prosecutions that were still ongoing at the time of writing. Late in August 2022, the JSE imposed a R2-million fine on the former chief financial officer and barred him from serving as a director for any listed company for a decade.




Overview – US Generally Accepted Accounting Principles (GAAP)


As we’ve mentioned, the United States does not adhere to IFRS, using the Generally Accepted Accounting Principles (GAAP) system instead. As the US is the world's largest single market, many of the world’s largest companies fall under this system.

Even though we in South Africa do not use the US system, anyone working in the field of accountancy should be at least somewhat familiar with the standards set in the US.



US Securities and Exchange Commission


The US Securities and Exchange Commission (SEC) is an independent US government agency responsible for overseeing and regulating the country’s securities markets. It has three primary aims to protect investors; maintain fair, orderly, and efficient markets; and facilitate capital formation.

The SEC was formed during the Great Depression in the wake of the Wall Street Crash of 1929. It was set up to prevent the kind of market manipulation that had led to the collapse of the US stock market.

The SEC’s Financial Reporting and Audit (FRAud) group is a division within the SEC tasked with identifying and prosecuting securities law violations related to financial reporting and audit failures. The SEC’s Fraud Group also plays a proactive role in looking for areas within the reporting standards that are susceptible to fraudulent financial reporting.



Corporate accounting scandals defying GAAP


As we mentioned earlier, the US is such a globally dominant economic powerhouse that most of the largest accounting scandals involve US companies. This means that many of the largest scandals involve manipulation or failure to properly adhere to the GAAP set of standards for US public companies.

Wells Fargo, the fourth largest bank in the US, was forced to pay $3-billion in fines and penalties as the result of fraudulent activity by employees in 2020. This is the largest US corporate scandal of the decade so far. As large as the fine was for Wells Fargo, it is dwarfed by some earlier accounting scandals.

US energy-trading company Enron became the poster child for US accounting scandals when it filed for bankruptcy at the end of 2001 after it admitted to having overstated earnings since 1997. Enron’s bankruptcy filing was the largest in US history at the time, wiping out about $65.5-billion in market value. In 2008, a court ruled that the banks involved in the accounting fraud pay $7.2-billion to shareholders and investors.

Although Enron’s collapse resulted in more vigilance and scrutiny within public companies, Enron only held the title of worst US bankruptcy for about half a year. Worldcom’s July 2002 collapse took the lead when it wiped out more than $100bn in value. A few years later, the global financial crisis of 2008/9 helped to smash previous bankruptcy records with the $691bn demise of Lehman Brothers and the $327bn implosion of Mutual Bank. At the time of writing, Enron’s once unimaginable collapse now sits in sixth position on lists of the largest US bankruptcies.

While these scandals show how markets have been manipulated in the past, they have often resulted in stricter laws and improvements in market oversight. Many of the current accounting standards have been implemented for exactly the reason of preventing such fraud in the future.





Accounting Standards Board (ASB)


The Accounting Standards Board (ASB) is a South African non-profit that develops accounting standards to enhance financial reporting in South Africa’s public sector. In addition to following all the standards as set out by IFRS, it further has a focus on ensuring that public entities adhere to Generally Recognised Accounting Practice (GRAP). Similar to GAAP in the US, GRAP comprises a set of standards to ensure transparency in the financial reports of public entities.

For clarity and to avoid confusion, it is worth noting that there used to be a UK group that had the same name and acronym. Fortunately, that confusion no longer arises as the UK ASB was replaced by the Accounting Council in July 2012. Another body still uses the same acronym but has a slightly different name. The Auditing Standards Board (ASB) is part of the American Institute of Certified Public Accountants (AIPCA). It issues guidelines and rules to ensure quality and consistent financial reporting by certified public accountants.



Generally Recognised Accounting Practice (GRAP)


Generally Recognised Accounting Practice (GRAP) was implemented across South Africa’s public sector from the 2006 financial year onwards. The GRAP set of standards ensures there is uniformity in the way that public entities report on their finances. This allows for easier comparison between entities as well as between different reporting periods.

GRAP is specific to South African public entities, but other countries have their own set of reporting standards that government departments must follow.

The name Generally Recognised Accounting Practice (GRAP) is very similar to that of the Generally Accepted Accounting Practice (GAAP) in the US. While GAAP has the same goal of implementing reporting standards, it is aimed specifically at private companies in the US. US government departments follow similar standards that are controlled by the Governmental Accounting Standards Board (GASB) at the state and local government level; and the Federal Accounting Standards Advisory Board (FASAB), which issues financial accounting standards at the federal or national level.



Public Company Accounting Oversight Board (PCAOB)


The Public Company Accounting Oversight Board (PCAOB) is a United States non-profit company that oversees the audits of public companies and SEC-registered brokers and dealers. Its goal is to protect investors and further the public interest by ensuring that audit reports are informative, accurate and independent.

The PCAOB was set up through the passing of the Sarbanes–Oxley Act of 2002 in the United States. It is also called either the “Public Company Accounting Reform and Investor Protection Act” (in the Senate) or “Corporate and Auditing Accountability, Responsibility and Transparency Act”. The act introduced stricter rules and harsher penalties related to corporate disclosure and financial reporting. These laws were passed as a result of several large accounting scandals such as Enron and WorldCom that saw billions of dollars lost by investors.

The PCAOB has been tasked with four main responsibilities:

  • Register public accounting firms that prepare audit reports for issuers, and SEC-registered brokers and dealers.
  • Establish or adopt auditing and related attestation, quality control, ethics, and independence standards.
  • Inspect registered public accounting firms’ audits and quality control systems.
  • Investigate and discipline registered public accounting firms and their associated persons for violations of specified laws, rules or professional standards.



Inspection reports – procedures and guidelines

As part of its oversight duties, the PCAOB also carries out inspections on auditing companies. These inspection reports follow a set of procedures and guidelines.

The PCAOB inspects registered accounting firms that regularly provide audit reports for more than 100 issuers each year. Smaller firms that provide audit reports for 100 or fewer issuers must be inspected at least once every three years.



Financial Accounting Standards Board (FASB)

The Financial Accounting Standards Board (FASB) is the designated accounting standard setter for public companies operating within the US. It was appointed to this role by the US Securities and Exchange Commission, which oversees US stock markets.

It is responsible for establishing and improving the Generally Accepted Accounting Principles (GAAP) set of standards to which all US publicly listed companies must adhere. It is also responsible for the standards to which private companies and not-for-profit organizations that follow GAAP must adhere.

The FASB was established in 1973 and is overseen by the Financial Accounting Foundation. Its stated purpose is to “establish and improve financial accounting and reporting standards to provide useful information to investors and other users of financial reports and educate stakeholders on how to most effectively understand and implement those standards”.

It is worth mentioning here the Federal Accounting Standards Advisory Board (FASAB), which is specifically responsible for the accounting standards with which US federal government departments must comply.



Accounting Standards Codification


Part of the work that the Financial Accounting Standards Board (FASB) does in maintaining GAAP is to carry out accounting standards codification. By codification, we mean the different accounting codes used for different sections and topics within a financial report.

The FASB’s Accounting Standards Codification was introduced in 2009 to improve on GAAP and introduce further standardisation to make reports easier to compare and easier to process within a database.

The full accounting standards codification is available in a basic view for free, with a professional account requiring a subscription. You will need to prove that you are not a robot to access the codes, but you can do so on the FASB’s Accounting Standards Codification (ASC) page.





As you’d expect, accountants, bookkeepers and auditors all need to use accounting standards in their day-to-day work. There are however a few other professions that also benefit from accounting standards. Business owners and executive management of a company should also have at least a basic understanding of accounting and accounting standards. While they would not need to know the intricacies of producing a financial report, they should be able to interpret one.

Understanding and interpreting financial statements is also a valuable skill for investors and venture capitalists. Banks that are involved in business lending also need to be able to make sense of a company’s financial statements to determine the financial security of the company and assess the risk of a loan to that company.



Here are some common questions relating to accountancy and financial reporting standards both globally and in South Africa.

What are accounting standards?

Accounting standards are sets of principles, standards and procedures that are commonly shared and understood among accountants and auditors. Accounting standards provide the guideline or framework that financial reports must follow. The reason for having accounting standards is so that financial reports are presented in a uniform way and so that comparisons can be easily made. There are however many different sets of accounting standards. Smaller companies generally have to follow less strict standards than larger ones with shareholders and public listings. Public entities like government departments usually also have to follow a set of accounting standards.
Most of the world's publicly listed companies adhere to the International Financial Reporting Standards (IFRS).

What is the function of the Accounting Standard Board?

The function of the Accounting Standards Board (ASB) is to develop and maintain accounting standards specifically for financial reporting in South Africa’s public sector. The set of standards that it maintains is known as Generally Recognised Accounting Practice (GRAP). You can learn more about the Accounting Standards Board (ASB) and some other institutions that it is sometimes confused with, higher in this article.

What is generally recognised accounting practice?

Generally Recognised Accounting Practice (GRAP) is the set of accounting and financial reporting standards that South Africa's public sector must adhere to. It was introduced in 2006 to ensure that the financial reports of government entities are presented in a standardised way. This allows for more transparency and for better comparisons of the results between different departments and between different periods.
You can read more about Generally Recognised Accounting Practice (GRAP) in the previous section.

What are the four Generally Accepted Accounting Principles?

The GAAP framework has at its core 10 underlying principles, which are in turn guided by what are called the four constraints, which are: objectivity, materiality, consistency and prudence.

 For the full list of principles, please click on the section on GAAP rules below.

What is the difference between IFRS and GRAP?

IFRS are a set of international accounting standards, while GRAP is specific only to South Africa. Although it is an international standard, some countries have their own set of standards, most noticeably the US. The US accounting standard is called GAAP.

What does IFRS mean?

IFRS stands for International Financial Reporting Standards. The IFRS is a globally recognised set of standards that govern how financial statements are reported by companies. The reason it was set up is so that there is a uniform method of reporting across countries, allowing for them to be easier understood and interpreted around the world. The countries that recognise and adhere to IFRS have diverse languages and cultures, but by having this standard accountants from any country can understand what is being reported in any financial statement.

What are the 4 principles of IFRS?

IFRS requires that four basic principles be applied in financial reporting. These are clarity, relevance, reliability and comparability.

 What is the difference between GAAP & IFRS?

GAAP is the set of accounting and financial reporting standards used in the US. IFRS serves the same purpose, but it is internationally recognised by 160 countries rather than just one.

How many IFRS standards are there?

In addition to the full set of IFRS, which covers several guidebooks, taxonomies and appendices, there are some other sets of standards. There is also the SME IFRS which is aimed at smaller companies and simplifies the requirements.

What does the IASB do?

The International Accounting Standards Board (IASB) is one of two standards-setting boards that assist the IFRS Foundation in developing and maintaining the standards to which IFRS must comply.

What is IASB and its objectives?

The International Accounting Standards Board (IASB) is part of the IFRS Foundation. It is an independent group of accountancy experts from around the world who are responsible for setting, updating and developing the set of standards that make up the international financial reporting standards put out by the IFRS Foundation.

What does the FASB do?

The Financial Accounting Standards Board (FASB) is a US non-profit organisation that is responsible for developing and maintaining the accounting standards that US companies must comply with when reporting on their finances. The set of standards that the FASB is responsible for is known as the generally accepted accounting principles (GAAP).

What is the difference between GAAP and FASB?

GAAP stands for generally accepted accounting principles and is the set of accounting rules, standards and procedures issued by the Financial Accounting Standards Board (FASB). Put simply, GAAP is the US financial reporting rulebook and the FASB is responsible for compiling it.

What GAAP means?

GAAP is the acronym for the Generally Accepted Accounting Principles (GAAP) that are used by publicly listed companies in the United States.

What are the rules of GAAP?

The rules of GAAP are guided by 10 key principles. These are:

Principle of Regularity
Principle of Consistency
Principle of Sincerity
Principle of Permanence of Methods
Principle of Non-Compensation
Principle of Prudence
Principle of Continuity
Principle of Periodicity
Principle of Materiality
Principle of Utmost Good Faith


Why is the GAAP important?

Much like the IFRS, GAAP is considered important because it ensures uniformity, comparability and transparency of financial documents. However, as GAAP is a US standard, it is only applicable within that country. The IFRS Foundation has long sought to get the US to adopt the near-universal global IFRS standards as used by most other countries as, ironically, GAAP's existence is a contradiction of the aims of uniformity and comparability. That said, the US economy's sheer size means that GAAP remains important internationally.



If you are considering BCom Accounting or any other accountancy courses, our article on why you should study BCom Accountancy may help you make up your mind. To better understand the difference between one degree in accounting and another, this article has useful information on the differences between a BCom Accountancy and a Bachelor of Accounting.

Please read on to learn the benefits of University of Johannesburg (UJ) online degrees and how you can complete your Bachelor of Commerce in Accountancy degree flexibly.

Study an online degree

A full-time job doesn’t have to stop you from studying for a degree in accounting online with the University of Johannesburg (UJ). As with all the other UJ online degrees, the format of UJ’s online degree in accounting is designed so that you can study in your free time and continue to work uninterrupted.

An added benefit of doing an online degree with UJ is that there are multiple starting points throughout the year. Modules run for seven weeks, meaning that you can jump in and get started with the accounting courses at six different times in the year.

To give further flexibility, you only need to pay for your online studies one module at a time. The rolling start dates and flexible payments were designed with the knowledge that it can be difficult to be sure you’ll have both the finances and the time to study for four straight years. If life happens, you can press pause and pick up again a few months later.


Download the Bachelor of Commerce in Accountancy brochure

If you are interested in studying for a degree in accounting, you can download a brochure on UJ’s Bachelor of Commerce in Accountancy course (BCom Accountancy) from the linked page.

To learn more about what a Bachelor of Commerce in Accountancy entails, what you can do with it and which companies are the biggest employers, please read our article on the requirements for studying an accounting degree and the benefits. In short, it answers the big question of “why study accounting?”.

You can also read another previous article on the shortage of skilled professionals in the accounting profession as well as our detailed explainer article about the different career paths for accounting professionals and the different professionally recognised accounting designations. We also go into detail about which designations you can attain with lower-level finance and accounting courses and diplomas, with a three and four-year degree in accounting as well as with a Master’s level degree in accounting.




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