Question

In financial accounting, why is reporting control procedures required (in governmental and GAAP reporting requirements) and what information does it reveal about the company?

Answer 1

Why is reporting control procedures required?

1. To ensure a minimum level of consistency in a company's financial statements, which makes it easier for investors to analyze and extract useful information.

2.  To Improves the clarity of the communication of financial information.

3. Without control procedures, companies would be free to decide for themselves what financial information to report and how to report it, making things quite difficult for investors and creditors who have a stake in that company.

4. To make the financial reporting process transparent and standardizes assumptions, terminology, definitions, and methods.

Above four are the main reasons to explain why control procedures are required in financial reporting via GAAP.

Let us understand What is GAAP?

Generally accepted accounting principles, or GAAP, are a set of rules that encompass the details, complexities, and legalities of business and corporate accounting.U.S. law requires businesses that release financial statements to the public and companies that are publicly traded on stock exchanges and indices to follow GAAP guidelines.

The Principles of GAAP , are the accounting rules used to prepare and standardize the reporting of financial statements, such as balance sheets, income statements and cashflow statements, for publicly traded companies and many private companies in the United States. GAAP-based income is measured so that the information provided on financial statements is useful to those making economic decisions about a company, such as potential investors and creditors.

What information does it reveal about the company?

• Recognition—what items should be recognized in the financial statements (for example as assets, liabilities, revenues, and expenses)
• Measurement—what amounts should be reported for each of the elements included in financial statements,
• Presentation—what line items, subtotals and totals should be displayed in the financial statements and how might items be aggregated within the financial statements
• Disclosure—what specific information is most important to the users of the financial statements. Disclosures both supplement and explain amounts in the statements.