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Weakness of GAAP: GAAP provides the framework for financial accounting

in publicly traded companies. A standardized set of principles and constraints allows for comparability between different corporate entities, which enhances the ability of investors and creditors to make sound decisions. However, because financial statements are the primary means of communicating financial information to outside parties, companies may face a conflict of interest. Optimizing company performance in a strictly economic sense may be less valuable than optimizing for the best looking financial statements, at least in the short term. According to a study published in the Journal of Accounting and Economics, 78% of surveyed executives admitted to "sacrificing long-term value to smooth earnings." Simply put, GAAP's framework of principles and constraints is susceptible to manipulation, and incentivizes manipulative practices.


Find how this weakness of GAAP could be addressed and explain why this would fix the issue. Basically, find a solution to fix this problem.

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Subject: Accounting, Business

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