4.1.2.1 A very brief introduction into accounting standards

Two relevant major international accounting (or financial reporting) systems exist: the International Financial Reporting Standards (IFRS)1 and the Generally Accepted Accounting Principles (GAAP).

IFRS is created by the International Accounting Standards Board (IASB), which is the independent standard-setting body of the IFRS Foundation, whose rules apply to all EU listed companies.2,3 Other companies and jurisdictions apply IFRS as well.

GAAP (for the USA, also US GAAP) is created by the Accounting Standards Codification of the Financial Accounting Standards Board (FASB), which is the single official source of authoritative, nongovernmental generally accepted accounting principles (GAAP) for the USA.4

Even though this research focusses on EU VAT rules, I will examine the principles of both accounting standards, because they provide relevant insights into a possible way of determining ‘economic reality’. Since this section represents a step in the process of determining whether a supply is made for consideration and what the VAT treatment is of a supply that is not made for consideration, I will focus on the accountancy rules that deal with these concepts. Because supplies made free of charge are not made for consideration, it could be helpful to examine the rules about allocating revenue to specific elements of a multiple-element transaction. These are the accountancy rules for ‘revenue recognition’.