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+1 (571) 469-1075 info@thefinancezoom.comThe financial environment of the present is defined by the growing effects of globalization and various forms of cross-border financial activities. This means that, when it comes to international businesses, it is required to be well aware of the accounting standards used in other countries. U.S. Generally Accepted Accounting Principles and Turkish Generally Accepted Accounting Principles are vital frameworks in which U.S. and Turkish companies operate. Therefore, one of the objectives of the current article is to compare two sets of accounting standards to guide companies that operate internationally, including The Finance Zoom.
GAAP Frameworks: An Overview
U.S. GAAP and Turkish GAAP are two commonly used sets of accounting standards that define how companies should create and demonstrate their financial statements. U.S. GAAP was created by the Financial Accounting Standards Board, and Turkish GAAP was established under the Public Oversight Accounting and Auditing Standards Authority of Turkey.
US GAAP, on the one hand, is usually associated with detailed rules and various industry guidance. On the other hand, Turkish GAAP has evolved substantially over several years and now is designed to be compatible with International Financial Reporting Standards in the country’s attempt to adhere to global financial standards.
Revenue Recognition and Measurement Differences
There are several areas where U.S. GAAP and Turkish GAAP differ greatly. One such area is revenue recognition. U.S. GAAP has a wide framework on revenue recognition ASC 606 that is applicable to all industries. The system puts the emphasis on the passing of control of goods or services to the customer. In Turkey, the country uses the Communiqué on Financial Reporting Standards that are IFRS-based. In that framework, there is TAS 18 – Revenue that defines when and how revenue should be recognized.
Measurement: U.S. GAAP also allows LIFO, or last-in, first-out, method for inventory accounting, a practice that is not permitted by Turkish GAAP. Instead, Turkish GAAP requires to use of FIFO and weight average cost method. These two methods of inventory valuation are also consistent with IFRS.
Consolidation and Financial Disclosures
Furthermore, consolidation is also another aspect in which U.S GAAP and Turkish GAAP differ. The U.S. framework has authoritative guidance on the consolidation of the financial statements of certain legal entities under the control of a parent, called the Codification income taxes. On the other hand, Turkish GAAP has a standard that is more principle-based, and, as a result, registrants may differ as to which entities are consolidated or not compared to U.S. practice.
More specifically, U.S. GAAP often requires much more detailed disclosures, especially in the notes to the financial statements. This is partially related to the litigious nature of the U.S. environment and the fact that disclosures may shield the company from certain lawsuits. Turkish GAAP, too, requires extensive disclosure, but the level of detail probably will not match the U.S. standards.
Tax Reporting and Compliance
The specifics of taxation and the need to comply with tax requirements represent another managerial challenge faced by businesses in both countries. Tax basis accounting significantly diverges from U.S. Generally Accepted Accounting Principles, which means that in addition to the U.S. GAAP financial statements, various separate tax reports should be filled out in the U.S. In this context, the professional help of cross-border tax accountants and expat tax accountants is needed.
Differences between financial and tax reporting are present in Turkey, which, though progressively adopting accounting standards aligned with IFRS, still requires tax-oriented adjustments to be performed by companies. Therefore, companies doing business in Turkey are required to prepare financial reports according to Turkish GAAP while doing their financial adjustments, regardless of their practices under Turkish GAAP, and under the Turkish tax code.
Thus, an understanding of the similarities and differences between U.S. and Turkish accounting standards is important for U.S. companies that enter the Turkish market. It is necessary for proper and accurate financial reporting to maintain the confidence of shareholders and comply with legal and regulatory requirements.
A cross-border tax accountant near me, The Finance Zoom, or an expat tax accountant who is conversant with both standards, could be critically helpful in maintaining smooth international financial operations, optimizing tax burdens, and ensuring regulatory compliance on both ends. As the capabilities of businesses increase and the support they receive becomes more sophisticated, this aspect of international business management in the USA will remain, if not increase, the level of importance.
Reference
FINANCIAL STATEMENT EFFECTS OF ADOPTING INTERNATIONAL ACCOUNTING STANDARDS: THE CASE OF TURKEY
https://acikerisim.deu.edu.tr/xmlui/bitstream/handle/20.500.12397/11144/231376.pdf?sequence=1&isAllowed=y
https://www.linkedin.com/pulse/comparative-analysis-us-gaap-ifrs-financial-reporting-dastgeer-waheed
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