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Chapter 1: Question 12Q (page 22)

If you had to explain or define 鈥済enerally accepted accounting principles or standards,鈥� What essential characteristics would you explain in your explanation?

Short Answer

Expert verified

Characteristics of generally accepted accounting principles include:

  • Generally Accepted Accounting Principles (GAAP) possess 鈥渟ubstantial authoritative support.鈥�
  • It is identified by a large group of accounts practitioners and other members of the business and financial company.
  • Only business transactions are to be included in the financial statements as per the business entity concept.

Step by step solution

01

Meaning of Generally Accepted Accounting Principles (GAAP)

Generally accepted accounting principles, commonly known as GAAP, refer to the rules, conventions, and procedures required to define accounting practice in any business situation. Including both comprehensive guidelines and relatively detailed exercises and procedures.

02

Characteristics of Generally Accepted Accounting Principles (GAAP)

The essential characteristics of generally accepted accounting principles include:

  • Generally Accepted Accounting Principles explain a criterion of how companies should assemble their financial statements to check consistency and uniformity in the firm.
  • Generally Accepted Accounting Principles state that firms are required to prepare their financial statements with the help of accrual accounting.
  • Opinions provided by the Accounting Principles Board (APB), bulletins issued by the committee on accounting procedure, as well as statements issued by the Financial Accounting Standards Board comprise 鈥渟ubstantial authoritative support.鈥�

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Most popular questions from this chapter

ETHICS (Rule-Making Issues) When the FASB issues new pronouncements, the implementation date is usually 12 months from date of issuance, with early implementation encouraged. Karen Weller, controller, discusses with her financial vice president the need for early implementation of a rule that would result in a fairer presentation of the company鈥檚 financial condition and earnings. When the financial vice president determines that early implementation of the rule will adversely affect the reported net income for the year, he discourages Weller from implementing the rule until it is required.

Instructions:Answer the following questions.(b) Is the financial vice president acting improperly or immorally?

One writer recently noted that 99.4 percent of all companies prepare statements that are in accordance with GAAP. Why then is there such concern about fraudulent financial reporting?

Some accountants have politicization in the development and acceptance of generally accepted accounting principles (i.e., rule-making) is taking place. Some use the term 鈥減oliticization鈥� in a narrow sense to mean the influence by governmental agencies, particularly the securities and Exchange Commission, on the development of generally accepted accounting principles. Others use it more broadly to mean the compromise that results when the bodies responsible for developing generally accepted accounting principles are pressured by interest groups (SEC, American Accounting Association, businesses through their various organizations, Institute of Management Accountants, financial analysts, bankers, lawyers, and so on).Instructions

(a) The Committee on Accounting Procedure of the AICPA was established in the mid-to late 1930s and functioned until 1959, at which time the Accounting Principles Board came into existence. In 1973, the Financial Accounting Standards Board was formed and the APB went out of existence. Do the reasons these groups were formed, their methods of operation while in existence, and the reasons for the demise of the first two indicate an increasing politicization (as the term is used in the broad sense) of accounting standard setting? Explain your answer by indicating how the CAP, the APB, and the FASB operated or operate. Cite specific developments that tend to support your answer.

(b) What arguments can be raised to support the 鈥減oliticization鈥� of accounting rule-making?

(c) What arguments can be raised against the 鈥減oliticization鈥� of accounting rule-making?

Explain the role of the Emerging Issues Task Force in establishing generally accepted accounting principles.

GROUPWORK (GAAP Terminology) Wayne Rogers, an administrator at a major university, recently said, 鈥淚鈥檝e got some CDs in my IRA, which I set up to beat the IRS.鈥� As elsewhere, in the world of accounting and finance, it often helps to be fluent in abbreviations and acronyms.

Instructions

Presented below is a list of common accounting acronyms. Identify the term for which each acronym stands, and provide a brief definition of each term.

(a) AICPA (e) FAF (l) FASB

(b) CAP (f) FASAC (j) SEC

(c) EITF (g) GAAP (k) IASB

(d) APB (h) CPA
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