What organization issues the majority of generally accepted accounting standards in the United States?
A commonly recognized set of rules and procedures governing corporate accounting and financial reporting Show
What is GAAP?GAAP, or Generally Accepted Accounting Principles, is a commonly recognized set of rules and procedures designed to govern corporate accounting and financial reporting in the United States (US). The US GAAP is a comprehensive set of accounting practices that were developed jointly by the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB), so they are applied to governmental and non-profit accounting as well. US securities law requires all publicly-traded companies, as well as any company that publicly releases financial statements, to follow the GAAP principles and procedures. In addition, or as an alternative, are the International Financial Reporting Standards (IFRS) established by the International Accounting Standards Board (IASB). The IFRS rules govern accounting standards in the European Union, as well as in a number of countries in South America and Asia. The Core GAAP PrinciplesGAAP is set forth in 10 primary principles, as follows:
The Generally Accepted Accounting Principles further set out specific rules and principles governing such things as standardized currency units, cost and revenue recognition, financial statement format and presentation, and required disclosures. For example, it requires precise matching of expenses with revenues for the same accounting period (the matching principle). History of GAAPGenerally Accepted Accounting Principles were eventually established primarily as a response to the Stock Market Crash of 1929 and the subsequent Great Depression, which were believed to be at least partially caused by less than forthright financial reporting practices by some publicly-traded companies. The federal government began working with professional accounting groups to establish standards and practices for consistent and accurate financial reporting. Generally Accepted Accounting Principles began to be established with legislation such as the Securities Act of 1933 and the Securities Exchange Act of 1934. The GAAP has gradually evolved, based on established concepts and standards, as well as on best practices that have come to be commonly accepted across different industries. Why is GAAP Important?Generally Accepted Accounting Principles make financial reporting standardized and transparent, using commonly accepted terms, practices, and procedures. The consistency of presentation of financial reports that results from GAAP makes it easy for investors and other interested parties (such as a board of directors) to more easily comprehend financial statements and compare the financial statements of one company with those of another company. GAAP also seeks to make non-profit and governmental entities more accountable by requiring them to clearly and honestly report their finances. In short, GAAP is designed to ensure a consistent presentation of financial statements, making it easier for people to read and comprehend the information contained in the statements. Applications in Financial AnalysisFor financial analysts performing valuation work and financial modeling, it’s important to have a solid understanding of accounting principles. While this is important, financial models focus more on cash flow and economic value, which is not significantly impacted by accounting principles (other than for the calculation of cash taxes). Alternatives to GAAPGAAP is the set of standards and practices that are followed in the United States, but what about other countries? Outside the US, the alternative in most countries is the International Financial Reporting Standards (IFRS), which is regulated by the International Accounting Standards Board (IASB). While the two systems have different principles, rules, and guidelines, IFRS and GAAP have been working towards merging the two systems. Additional ResourcesThank you for reading CFI’s guide to GAAP. To further your education, the following CFI resources will also be helpful:
What organization issues the majority of generally accepted accounting standards in the United States quizlet?FASB Correct. The Financial Accounting Standards Board (FASB) has the ultimate authority for setting US GAAP for private companies in the US. Correct. The Financial Accounting Standards Board (FASB) has the ultimate authority for setting US GAAP for private companies in the US.
WHO issues accounting standards in USA?Responsibility for enforcement and shaping of generally accepted accounting principles (GAAP) falls to two organizations: The Financial Accounting Standards Board (FASB) and Securities and Exchange Commission (SEC). The SEC has the authority to both set and enforce accounting standards.
What organization issues the GAAP rules?GAAP consists of a common set of accounting rules, requirements, and practices issued by the Financial Accounting Standards Board (FASB) and the Governmental Accounting Standards Board (GASB). GAAP sets out to standardize the classifications, assumptions and procedures used in accounting in industries across the US.
Is GAAP and FASB the same?GAAP is a set of procedures and guidelines used by companies to prepare their financial statements and other accounting disclosures. The standards are prepared by the Financial Accounting Standards Board (FASB), which is an independent non-profit organization.
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