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Important of GAAP and accounting principles


1. What is the distinctive difference between the United States focus on promulgating and implementing accounting principles and that of other countries? What does each system entail? Which perspective, in your opinion, is more advantageous? Why? Which system does an American international company, such as Michelin Corporation, use when compiling financial statements? Give an example of how one system is more useful than another.

2. Why is it important that GAAP be followed? Consider the following situation: An investor needs to decide whether to invest in Company A or Company B. The investor reads the annual reports of each company and begins to make comparisons of the profitability of each company? What assumption is this investor making? What is the effect of this assumption being untrue?

3. Accounting principles have become stricter in the past ten years. Why is this? What are some distinctive differences between accounting laws created 20 years ago and those created today? What is the purpose of modern accounting regulation? Give your opinion of how effective modern accounting laws have been on the honest issuance of financial statements. Give an example of how honest disclosure affects our economy on a daily basis.

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Question 1
In the United States, genially accepted accounting principles for private entities are primarily promulgated and implemented by the Financial Account Standards Board (or FASB) while for government entities by the Government Accounting Standards Board (or GASB). Both these board promulgate and implement accounting principles after exhaustive consultations with different groups including members of the profession and experts within the industry to be affected by the proposed standard.
Most countries, on the other hand, have adopted the International Accounting Standards as their countries' GAAP while some use a different system. For example, China's accounting system is based on a law. The People's Republic of China Accounting Law is the basis of how businesses in China account for their transactions.
Of the two systems, I believe that the ...

Solution Summary

The importance of GAAP and accounting principles are examined.