Question

Read an article on the purpose of GAAP (Links to an external site.)Links to an external site. .

Write a 1-2 page paper that addresses the following questions:

How does GAAP standardize accounting records across companies?

Why are private businesses not required to follow GAAP?

Which issues may have occurred before rules for accounting documentation were standardized?

Who maintains GAAP rules? Why is this separate from the responsibilities of government?

What is the difference between preparing reports without GAAP?

What are some issues that GAAP does not address?

Answer 1

How does GAAP standardize accounting records across companies?

Generally Accepted Accounting Principles are the result of the combined efforts of businesses and the govenrment to bring uniforminty in the busiess structure and accounting to measure, value and record the transactions undertaken. In absence of GAAP, it would be unimaginable situation where each company might be using their own accounting policies thus creating frauds and chaos. With GAAP, companies are required to use the prescribed rules, not following which will be considered as the irregularity open to the investigation and charges from SEC. With GAAP thus company following uniform accounting policies and practices, leading to uniformity.

Why are private businesses not required to follow GAAP?

To ease of the burden of compliances and promote them they are not required to follow GAAP. Moreover, small private businesses do not have much outside capital or investors except bank loans which reduces the risk of frauds.

Which issues may have occurred before rules for accounting documentation were standardized?

Depressions and stock crashes of 1929 occured along with different types of industry, cost to regulate, the types of users of accounting documentation, the methods of business etc.before rules were standardised..

Who maintains GAAP rules? Why is this separate from the responsibilities of government?

The U.S. Financial Accounting Standard Board maintains GAAPS rules. It is seperate as these are maintained by the business bodies as per their requirements and to give them the independence.

***an expert here is allwed to answer initial 4 questions, hope this helps. Thanks**