LESSONNEW
Accounting - GAAP PTKelly
kellyt_33495
2 days ago
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GAAP
The Rules of the Game
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Generally Accepted Accounting Principles
a common set of accounting principles, standards, and procedures issued by the Financial Accounting Standards Board (FASB)
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Purpose:
Public companies in the U.S.must follow GAAP when their accountants compile financial statements.
A combination of authoritative standards (set by policy boards) and the commonly accepted ways of recording and reporting accounting information.
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Purpose (Cont.)
Aims to improve the clarity, consistency, and comparability of the communication of financial information.
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Global Standards
GAAP - USA based firms
IFRS - Much of World
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1. Principle of Regularity
The accountant has adhered to GAAP rules and regulations as a standard.
Unanimous agreement
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2.) Principle of Consistency
Accountants commit to applying the same standards throughout the reporting process, from one period to the next, to ensure financial comparability between periods.
Accountants are expected to fully disclose and explain the reasons behind any changed or updated standards in the footnotes to the financial statements.
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3.) Principle of Sincerity
The accountant strives to provide an accurate and impartial depiction of a company’s financial situation.
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4.) Principle of Permanence of Methods
The procedures used in financial reporting should be consistent, allowing comparison of the company's financial information.
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5.) Principle of Non-Compensation
Both negatives and positives should be reported with full transparency and without the expectation of debt compensation.
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6.) Principle of Prudence
Emphasizing fact-based financial data representation that is not clouded by speculation.
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7.) Principle of Continuity
While valuing assets, it should be assumed the business will continue to operate.
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8.) Principle of Periodicity
Entries should be distributed across the appropriate periods of time. For example, revenue should be reported in its relevant accounting period.
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