The GAAP is a group of accounting standards that are widely accepted as appropriate to the field of accounting. Accounting standards are necessary so that financial statements are meaningful across a wide variety of businesses.
An accounting standard is a guideline for financial accounting. The GAAP is comprised of a large group of individual accounting standards. The item covered by the GAAP is revenue recognition, balance sheet, and outstanding share measurements’.
How is Accounting Standards Established?
Accounting principles have been long in developing and are subject to continuous innovation and change.
Role of the accounting profession
The reasons for the accounting profession assumption of early leadership in developing countries.
One of the professions’ major and unique functions is that of attesting to the fairness of presentation of financial statements—the accounting capability required for their development.
Disclosure of accounting policies
The opinion requires disclosure of accounting policies either in a summery that is an integral part of the financial statements.
The disclosure would identify and describe e accounting principles followed, and the methods of applying that materiality affect the determination of financial position, changes in financial position, or results of operation.
Influence of the Securities and Exchange Commission
The SEC is an independent agency of the government, administrator, and the Securities Exchange Act of 1934.
The primary purpose of this Act ensures that there be given to a potential investor in security being offered for public sale all the material facts relating to the security that is needed to decide whether to buy it.
Influence of other organizations
The first one published in 1936 and the most recent in 1977. A membership composed primarily of accounting educators. They have a more detached point of view and a theoretical one.
The inconsistencies in accounting theory as calling for a broad effort to establish an integrated framework of accounting theory.
Example: AAA, NYSE.