October 8th, 2015 by adminThe common rules and standard for accountants is referred to as GAAP. GAAP is necessary for companies that compile their financial records and statements. Most of the duties are passed down to the accountant, but any businesses that wishes to become more involved with acquisitions and stocks should have a solid foundation of the accounting rules for gathering, recording and reporting a company’s financial information. Applying GAAP in the workplace benefits both the company and its clients. The goal of GAAP, or Generally Accepted Accounting Principles, is to provide clients, investors and creditors with cohesive and clear financial information when the they compare companies. Here in the U.S., three different entities oversee and establish requirements regarding GAAP. In the U.S., the Financial Account Standards Board (FASB) establishes the GAAP overall at the corporate level. The FASAC provides the FASB with advisement regarding GAAP. The Governmental Accounting Standards Board (GASB) specifies at the local level. The GASB specifies GAAP for government agencies and offices. The SEC does not require all businesses to comply with GAAP, but companies that are publicly traded must abide by GAAP for the purpose of financial reporting. The SEC does not make the standard; it enforces it. The SEC mandates that a company’s financial records adhere to and comply with GAAP standards. GAAP is a set of practices that establishes objectives and standards for how financial statements are prepared. The main four main parts of GAAP include:
- Recognition, which identifies which items must be disclosed in financial statements, such as expenses, itemized data sheets, revenues, liabilities, and income.
- Measurement, which determines what amounts must be represented for each individual section.
- Presentation, which spells out the line elements, subtotals and total for each and how they must be represented and aggregated on the financial statement.
- Disclosure, which identifies the important information that must be reported on the financial statements to benefit those reading the statements, such as investors and donors.