Question

1) Explain what accountants are generally referring to when they talk about "Financial reporting"

2) Explain the generally accepted accounting principles

3) Explain the sources of GAAP

Answer 1

(1): When they talk about “financial reporting” accountants are referring to the process of producing statements that disclose a business’s financial status and position to the management of the business, its investors and other stakeholders. The statements that have been referred to in the above statement are income statement, balance sheet and cash flow statement. Besides these financial statements accountants also prepare accompanying footnote disclosures. Other information that is part of financial reporting is press releases, quarterly reports, filings with SEC etc.

(2): Generally Accepted Accounting Principles (GAAP) is a common set of accounting principles, standards and procedures that are issued by FASB i.e. Financial Accounting Standards Board. GAAP is based on the following principles – principle of regularity, principle of consistency, principle of sincerity, principle of permanence of methods, principle of non-compensation, principle of prudence, principle of continuity, principle of periodicity, principle of materiality and principle of utmost good faith.

(3): The primary sources of GAAP are Securities and Exchange Commission (SEC), the Financial Accounting Standards Board (FASB) and the International Accounting Standards Board (IASB).

The sources of GAAP are categorized in descending order of authority as mentioned below:

· Officially established accounting principles consist of FASAB Statements of Federal Financial Accounting Standards.

· FASAB Technical Bulletins and, if specifically made applicable to federal reporting entities by the AICPA and cleared by the FASAB, AICPA Industry Audit and Accounting Guides.

· Technical Releases of the Accounting and Auditing Policy Committee of the FASAB.

· Implementation guides published by the FASAB staff, as well as practices that are widely recognized and prevalent in the federal government.