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Generally-Accepted Accounting Principles

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At the completion of the Darby Department Store audit the president asks about the meaning of the phrase "in conformity with generally accepted accounting principles," which appears in your audit report on the management's financial statements. He observes that the meaning of the phrase must include more than what he thinks as "principles."

a. Explain the meaning of the term accounting principles as used in the audit report. (Do not discuss the significance of "generally accepted")

b. The president wants to know how you determine whether or not an accounting principle is generally accepted. Discuss the sources of evidence for determining whether an accounting principle has substantial authority or support.

c. The president believes that diversity in accounting practice will always exist among independent entities despite continual improvements to comparability. Discuss the arguments that support his belief.

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Solution Summary

This solution looks at the meaning of accounting principles, determining whether a principle is generally accepted and diversity in practice in 387 words.

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a. Explain the meaning of the term accounting principles as used in the audit report. (Do not in this part discuss the significance of "generally accepted.")
Accounting framework is a standard framework of guidelines for preparation of accounts. These principles have rules, convention, and standards that accountants in a jurisdiction are required to follow for recording transactions and presenting them in financial statements. These principle are created so that the accounting information is reported impartially. The reason is that third parties that rely on such information feel assured that the information is free from bias.

b. ...

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