GAAP - GAAP: Generally Accepted Accounting Principles...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Generally Accepted Accounting Principles (GAAP) are the body of concepts, principles and procedures developed primarily by the Financial Accounting Standards Board (FASB) as well as by convention (how it has always been done). The three main sources for GAAP are: 1. FASB pronouncements (statements); 2. Security and Exchange Commission (SEC) regulations for listed companies; and 3. Accounting practices developed by respected industries and by public and private bodies over time. GAAP can be followed by all entities, including not-for-profit, publicly traded, closely held, corporations, partnerships, sole proprietorships, etc. The most common entities that must follow GAAP are those that are regulated by the SEC. In effect, publicly traded companies and others required by law. Many companies voluntarily follow GAAP because they issue (show) their financial statements to outsiders for such purposes as borrowing money or securing business contracts. The FASB: The FASB comprises of seven full-time members who must give up their association with employers and serve a five-year term with one five-year renewal permitted. Members represent segments of the business world, such as financial statement preparers, users and analyzers. Only a couple members may be CPAs. The basic procedure when developing a new FASB statement or changing a previous one is to: 1. Appoint a task force to coordinate the topic. 2. Prepare a discussion memorandum to identify problems and possible solutions by citing various issues involved. 3. Hold a public hearing to get a wide range of feedback. 4. Analyze oral and written responses to the discussion memorandum. 5. Issue an exposure draft proposing a statement of financial accounting standards. 6. Hold a public hearing on the proposed statement. 7. Analyze oral and written responses to the exposure draft. 8. Issue a final statement of financial accounting standards. The process forces FASB members to carefully consider different viewpoints and to justify their conclusions, not merely to reach a quick decision. Five positive votes are needed to pass a Statement of Financial Accounting Standard (SFAS). The SFAS is issued after deliberation and input from any interested parties and includes an appendix with background material on that topic and the reasons behind the FASB’s conclusions. As of June 2009 the FASB has issued 165 standards, 48 interpretations as well as other pronouncements. Some amend or modify existing standards and some are highly specialized, such as for specific industries. Most standards apply universally and have an important effect on financial statements. The FASB is currently working with the International Accounting Standards Board in order to develop a comprehensive common “international GAAP” that would eventually replace the current U. S. GAAP.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/03/2012 for the course ACCT 272 taught by Professor Mensah during the Fall '08 term at Rutgers.

Page1 / 4

GAAP - GAAP: Generally Accepted Accounting Principles...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online