This post addresses external reports, GAAP, & 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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Solution Summary
The solution provides a detailed explanation for each question addressing why externally presented reports are required to be prepared according to GAAP while internally presented managerial accounting reports are not, and how a misstatement in one financial statement, whether intentional or not, can affect a presentation in another financial statement.
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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 ...
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