Standards and Rules for Accountants

October 8th, 2015 by admin

The 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.
  Be wary of any financial statement that is not prepared with GAAP standards as a model. Even if a financial statement is prepared using GAAP principles, you must dissect and do all necessary research. Employing GAAP provides businesses, non-profits and government agencies with a wealth of benefits immediately and in the future. Anyone looking to invest or donate to a specific organization look for the common rules of practice and generally trust the entity overall when a uniform system has transparency at its core. When citizens and investors read financial statements, they can rest assured knowing the GAAP standards create information that is similar across the board, as far as reporting, it has been verified and audited, and is common language among citizens, donors, companies, organizations, financial firms, and other financial experts. Not only does GAAP establish transparency for others, but GAAP assists in providing companies with accurate information about economic and operating conditions to make better decisions that promote growth, lead to better financial decisions, and attract more capital.

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