Question

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Whether you are an investor, an owner, or a potential client, when considering a transaction with a particular company, having accurate financial information is a must. Especially with large, complex organizations, it can be very difficult to know if and how they are doing well or poorly. Both profits and losses are easily hidden, and companies who appear to be performing well might not be, or visa versa. It is in these situations in which strong accounting standards are a must. These standards ensure that financial reports are being produced according to rules and norms which are common across all industries. This helps those reviewing the financial reports to know exactly what they are looking at and how the data was collected. The Financial Accounting Standards Board produces the Generally Accepted Accounting Principles standards which are the norm for corporations in the USA and beyond. The FASB recently underwent a leadership change, and throughout the transition both the incoming and outgoing leadership expressed optimism about the standards and the industry has a whole (Cohn, 2020). Although even with the best standards unscrupulous accountants can always find ways to bend the data and produce deceitful reports, however GAAP principles go a long way toward holding everyone to the same standard. Key to GAAP principles is the concept of neutrality (Johnson, 2017). Accountants are expected to do their jobs without favoring any interested party or attempting to influence the behavior of anyone involved. This is intended to avoid a situation in which accountants present information in such a way to attempt to make a business look more profitable (for investment purposes), less profitable (for tax purposes) or to otherwise skew the data in a way which does not accurately present the company's actual financial position. Although it is doubtless that this neutrality is always 100% followed in the corporate world, the principle does provide pressure to minimize the amount of bias that goes into financial reports, particularly in publicly traded companies who are held to additional regulations. In the end, while investors always should do their homework and investigate all available information about a company, in general GAAP standards ensure that financial reports are overall trustworthy and useful to investors and other interested parties.  

Answer 1

It is true GAAP standards ensure that financial reports are overall trustworthy and useful to investors and other interested parties. Along with this , it is also true that despite of the standards accountants can find a way to bend the data and manipulate the accounts without being noticed. And it is not hidden from anyone that business scams are in the news frequently. This is happening even in the presence of GAAP. GAAP reduces the number of alternatives avaiy for the industries, it provides a direction to the work of accountants, it lays down rules and regulations for the protection of investors, it reduces the variability in the preparation of accounting statements and so on. To ensure everything is within the rules and regulations , auditors are appointed to examine the financial statements of the companies. To ensure that the accountants are true in their actions, the auditors are required to be independent and free from bias. He should have his independent judgement. GAAP produces fear of the law and the public but there is always a way past it. Though it is difficult, but if like minded people get together, it can be quite difficult to find out the problem for a long time because the system work through a series of persons. GAAP surely provides guide and instructions to conduct business activities lawfully and ethically but it is not the gurantee for the fairness of business activities. The business activities still have to be looked and examined. Other than financial statements, other qualitative factors have to be considered. GAAP is very essential and surely provide many benefits and it would have been impossible for investors to understand the businesses without it but still eyes have to kept open for everything.