Question

Briefly explain how the financial statement preparers, users, and other interested parties are involved in the standard setting process for U.S. GAAP. Referring to the Forbes article “The only three reasons entrepreneurs need accounting and finance (Links to an external site.)Links to an external site.", explain how the need to measure progress is satisfied by GAAP and the process used to derive GAAP.

Answer 1

Answer

The financial statement preparers, users, and other interested parties are involved in the standard setting process for U.S. GAAP:

In financial accounting, there is a 7-step process that FASB follows to issue a final standard:

Step 1: Identification of the issueStep

Step 2: Decision to pursue, which is when the issue is discussed whether it will be added to the technical agenda.

Step 3: Public meetings are held to deliberate the issue

Step 4: An exposure draft is created, this is intended to solicit input from financial statement

preparers, auditors, and users of financial statements

Step 5: The Board holds public roundtables to discuss the ED

Step 6: FASB analyzes all the input received on the issue and redeliberates

Step 7: Publication of the final standard.

Through this process, instead of allowing a group to set standards, one can say the issues and standards of the entire financial community.

The need to measure progress is satisfied by GAAP and the process used to derive GAAP:

GAAP is the standard set for the finance / accounting community, for a business to succeed, one should know where it started and where it is present in terms of revenue and expenditure. To measure progress, the company "starts trends in revenue and costs, so opportunities can be exploited and problems can be cured before real threat to your business"