Question

-What is GAAP and who develops GAAP?

-What is financial consistency and how does it apply to Inventory?

-Define Materiality and is explain whether the materiality for a $20 million revenue company would be the same for a $2 million revenue company?

-What is the Sarbanes-Oxley Act of 2002 and how has it affected accounting

-What is an Annual Report and who is required to file with the SEC?

Answer 1

GAAP stands for Generally Accepted Accounting Principles. It is a set of common accounting rules and practices. It was developed by the Financial Accounting Standards Board.

Financial consistency is the decision to adopt a specific way of recording financial information of the company. The method that has been selected by the company will have to be followed throughout. In case of inventory, the financial consistency implies that the same method will be applied for recording all information regarding inventory. For example: the company may be following the policy of LIFO to record the movement of inventory.

Materiality principle of accounting states that the material aspects of the company should be properly accounted for. The materiality for $20 million and $2million company will be different from each other as their value differ from each other.

The Sarbanes-Oxley Act of 2002 is a regulatory measure that helps to protect the investors from fraudulent transactions. Thus, it has affected accounting such that the company now has to.show all the details of the financial transactions. It encourages whistle blowing and financial literacy.

Annual report is the document prepared to record all the transactions and other details of the firm. All the listed companies have to file annual report with SEC.