The Solution
Those with a passing familiarity with accounting know that managers have choices about the way their organizations report income and financial condition. For example, LIFO and FIFO can lead to different net income. With such an array of methods and practices available, what is the meaning of "generally accepted accounting principles"?
Accounting principles are developed methods, practices and conventions used by managers and accountants to prepare financial reports. Generally accepted accounting principles evolve when these methods become widely used. However, there are many widely used accounting principles for presenting classifications of financial information. It is a challenge then to make correct conclusions and judgements based upon the diversity of "generally accepted accounting principles".
Customized GAAPs
As we know, in life there are choices because not everyone's life is the same. Companies of the same industry by choice therefore, tend to create their own GAAP. This concept allows readers of the same industry to compare financial information. This assumes that financial managers are trying to make the playing field "fair" to the uneducated reader. There in lies the problem. You cannot take a complicated subject and explain it to an uneducated reader. So why is it expected?
GAAP Evolution
Generally Accepted Accounting Principles have varied over time. While originally these were the policies and procedures used in practice, they now refer to the larger body of guidelines for accounting that exist. This larger body refers to the variety of professional and governmental organizations and standard setting bodies that exist such as the APB, FASB, older items from the AICPA "Research Bulletins" and APB Opinions. Add to this Gov't standards from the GASB and FASAB.
These standards represent the large variety of financial interests that exist in the world and the variety of special representations needed to accurately and fairly represent their financial position(s).
Conclusion
Generally Accepted Accounting Principles (GAAP), are merely common methods of measuring and reporting financial data. More specifically, they are a methodology of observing, measuring and reporting the financial data of an entity to those that may be interested such as investors, creditors, or regulatory authorities. The principles are developed from widely used or recognized practices in reporting financial information.
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