Accounting - GAAP PTKelly

GAAP

The Rules of the Game

Generally Accepted Accounting Principles

• a common set of accounting principles, standards, and procedures issued by the Financial Accounting Standards Board (FASB)

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.

Purpose (Cont.)

• Aims to improve the clarity, consistency, and comparability of the communication of financial information.

  
  

Global Standards

• GAAP - USA based firms

• IFRS - Much of World

1. Principle of Regularity

• The accountant has adhered to GAAP rules and regulations as a standard.

• Unanimous agreement

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.

3.) Principle of Sincerity

• The accountant strives to provide an accurate and impartial depiction of a company’s financial situation.

4.) Principle of Permanence of Methods

• The procedures used in financial reporting should be consistent, allowing comparison of the company's financial information.

5.) Principle of Non-Compensation

• Both negatives and positives should be reported with full transparency and without the expectation of debt compensation.

6.) Principle of Prudence

• Emphasizing fact-based financial data representation that is not clouded by speculation.

7.) Principle of Continuity

• While valuing assets, it should be assumed the business will continue to operate.

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.

9.) Principle of Materiality / Good Faith

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

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.