Gaap

GAAP is the widely used acronym for generally accepted accounting principles. This usually is defined as the broad guidelines, conventions, rules and procedures of accounting. The standard identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements. (Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield., 2007) Pronouncements by designated authoritative bodies must be followed in all applicable cases. The primary designated bodies are the Financial Accounting Standards Board (FASB), Accounting Principles Board (APB) and the American Institute of Certified Public Accountants (AICPA). The hierarchy of GAAP, or the “House of GAAP,” is categorized from most authoritative to least authoritative. The most authoritative, Category A is the FASB standards, interpretations, and staff positions; APB Opinions and AICPA Accounting Research Bulletins. The second authoritative, Category B is the FASB Technical Bulletins, AICPA Industry Audit and Accounting Guides and AICPA Statements of Position. The third authoritative, Category C is the FASB Emerging Issues Task Force, AICPA and Securities and Exchange Commission (SEC) Practice Bulletins. The least authoritative, Category D is the AICPA Accounting Interpretations, FASB Implementation Guides and the widely prevalent and recognized industry practices.

The basic objectives of financial reporting are to provide information that is useful to decision makers, whether investors or lenders. Financial reporting is done through financial statements. Financial Statements are meant not only for those that are knowledgeable to understand the Financial Statements but also provides a level of competence for those who do not understand. Financial Statements should be relevant, reliable, comparable and consistent. The primary qualities of relevance and reliability make accounting information useful for decision making. Relevant...