General Accepted Accounting Principles

Accounting Principles i

Running head: GENERAL ACCEPTED ACCOUNTING PRINCIPLES

General Accepted Accounting Principles

Accounting Principles ii

Abstract

My paper is about the GAAP (General Acceptance of Accounting Principles) which were created by the Accounting Principles Board (APB). The board was created by American Institute of Certified Public Accountants (AICPA) in 1959. APB issued 31 Opinions from 1959 to 1973 and those Opinions created GAAP. I think GAAP is interesting due to how many companies think they can get away with financial dealings but get caught. I also think that GAAP is a system that really needs a good looking at and maybe an overhaul. Some people say the GAAP is dead and should be shelved but I'm interested if they will follow the international GAAP or create a new system.

Accounting Principles 1

GENERAL ACCEPTED ACCOUNTING PRINCIPLES

Prior to the 1930s, general accepted accounting principles (GAAP) were developed through common usage. A practice was considered suitable if it was acceptable to most accountants. As the accounting practices grew and the world of business became more complex many people were not satisfied with the profession's progress in providing useful information. The desire for improvement caused many accountants, managers, and government regulators to want more uniformity in practice. In the 1930s they began to give authority for defining accepted principles to small groups of experienced professional accountants the AICPA (American Institute of Certified Public Accountants). (K.D. Larson, 1997).

The AICPA in 1959 created the Accounting Principles Board (APB) which mission was to develop an overall conceptual framework. The APB lacked productivity and failed to respond promptly. Realizing the needs to reform the APB, leaders in accounting profession appointed a study group on (Establishment of Accounting Principles). This group determined that the APB must be dissolved and a new standard-setting structure be created. It was dissolved in 1973. Thus a new structue was created which was composed of three organizations: the Financial Accounting Foundation (FAF, it selects members of the FASB, funds and oversees their activities), Financial Accounting Standards Advisory Council (FASAC), and the major operating organization in this structure Financial Accounting Standards Board (FASB), which is the primary authoritative source of GAAP. http://en.wikipedia.org/wiki/US_generally_accepted_accounting_principles

Accounting Principles 2

It is the job of the FASB to establish the "generally accepted accounting principles," or GAAP, to which public financial reporting by U.S. corporations must conform and to keep those principles current. In conducting its activities, the Board strives to carefully weigh the views of its constituents, who include all those with an interest in financial reporting, including users, preparers, and auditors of financial reports. (www.fasb.org, Facts about FASB, 2002).

The primary purpose of generally accepted accounting principles (GAAP) is to make the information in financial reports relevant, reliable, and comparable. Information that is relevant has the ability to affect the decisions made by financial statement users. Reliable information is necessary if decision makers are to depend on it. GAAP imposes limits on the variety of accounting practice that companies can use, thereby making the financial statements more useful. (K D. Larson, 1997). Generally accepted accounting principles for local and state governments operates under a different set of assumptions, principles, and constraints, as determined by the Governmental Accounting Standards Board (GASB). In the United States, as well as other countries practicing English common law system, the government does not set accounting standards, in the belief that the private sector has better knowledge and resources. http://en.wikipedia.org/wiki/US_generally_accepted_accounting_principles

GAAPS are rules to be followed by every company and are shunned or misused by