Externally presented reports, GAAP, and misstatements
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Why are externally presented reports required to be prepared according to generally accepted accounting principles while internally presented managerial accounting reports are not?
How can a misstatement in one financial statement, whether intentional or not, affect a presentation in another financial statement? Give an example of an error that occurs on one financial statement and the error flows through to a second financial statement.
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Why are externally presented reports required to be prepared according to generally accepted accounting principles while internally presented managerial accounting reports are not?
Externally presented reports are required to be prepared according to GAAP because the primary intended user of the external report is the investor, creditor, potential investor, or other member of the public that will use the financial statements for financial decision-making. GAAP therefore requires the information to be transparent, consistent, and relevant. This ensures that investors can make the best possible decisions. Managerial accounting reports that are used internally are not prepared in accordance with GAAP because their user is different. In this case, the main user is the manager, the board of directors, or other parties that operate inside of the organization, and therefore their focus will be different. They will be using the reports to make operating decisions, to make ...
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