Accounting - GAAP PTKelly
2 days ago
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  • Slide 1
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    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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    • 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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    9.) Principle of Materiality / Good Faith

    • Accountants must strive to fully disclose all financial data and accounting information in financial reports.

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    10.) Principle of Utmost Good Faith

    • Derived from the Latin phrase “uberrimae fidei” used within the insurance industry. It presupposes that parties remain honest in all transactions.

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