Basic Accounting Concepts and Business Structures

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Basic Accounting Concepts and Business Structures
Rose Latifi
ACC 537
November 10th 2012
Professor Joh David

Basic Accounting Concepts and Business Structures
Generally Accepted Accounting Principles (GAAP) and Related Hierarchy The common set of standards and procedures is called generally accepted accounting principles (GAAP). Four organizations are instrumental in the development of financial accounting standards (GAAP) in the United States: 1- Securities and Exchange Commission (SEC)

2- American Institutes of Certified Public Accountants (AICPA) 3- Financial Accounting Standards Board (FASB)
4- Government Accounting Standards Board (GASB)
The Hierarchy of Generally Accepted Accounting Principles is a standard that identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements. Hierarchy is established by the AICPA in Statement on Auditing Standards. At the foundation of that hierarchy are the principles established by the FASB and its predecessors, the APB and the AICPA Committee on Accounting Procedure. From that foundation, the hierarchy formulates an order for all the rules and procedures that are incorporated in the preparation of financial statements and that have come to be known as GAAP. The FASB decided that the GAAP hierarchy should be directed specifically to the company because it is the company (not the auditor) that is responsible for selecting the accounting principles for financial statements. As a result, the GAAP hierarchy should reside in the accounting literature, not the auditing literature. The GAAP hierarchy includes four successive categories (A-D). The highest level in the hierarchy that specifically addresses the issue establishes GAAP. The other levels of hierarchy are for nongovernmental entities. If accounting treatment of an event is not specified by Category A pronouncement, then Categories B through D should be investigated. If...
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