The world of accounting opens doors of opportunity for investors, stockholders and many businesses and organizations. However, accountants must follow guidelines established by “The American Institute of Certified Public Accountants”. (AICPA) Council designated the Federal Accounting Standards Advisory Board or (FASAB) as the body that establishes generally accepted accounting principles (GAAP).
GAAP is considered to be collection of methods used to prepare, process and present accounting information. GAAP is a general method, overall, is applicable to many different types of industries. The methods of using GAAP can be specific or principle based requirements. The use of GAAP can be flexible and general in the United States and are expected to follow GAAP principles.
Many organizations contribute to GAAP, however, the Financial Accounting Standards Board is the main contributor to GAAP. Generally accepted accounting principles vary, but are based on some basic principles that must be followed by all GAAP rules. The basic principles are consistency, reliability, relevance, and comparability. Based on these principles accountants are sworn to follow these rules. The first principle that should be followed is consistency, consistency in accounting means that all information should be gathered and presented in the same way each period. Whether quartley, annually or monthly, this information must be presented the same each time. For instance, if a company makes an entry in the financial statement,
it must be presented the same way each time and a valid reason for the entry should be considered. (http://www.suite101.com) The second principle that must be followed is reliability, reliability simply means that the information in the financial statement is reliable and verifiable by an independent party. If an independent auditor were to follow-up with the same information, that auditor should come up with the same information as...
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