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Accounting Terms, Equations and Intended Audience

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Part I. Discuss the terms listed below. Explain why these concepts are important to financial statements.

- Generally Accepted Accounting Principles (US GAAP);

- International Accounting Standards (IFRS);

- Securities and Exchange Commission (SEC);

- Public Company Accounting Oversight Board (PCAOB);

- Annual report; and

- 10-K, 10-Q, and 8-K

Part II: Explain the accounting equation and prepare a table showing the equation and show a list of accounts belonging to each category in the equation. You should include at least five accounts for each category.

Part III. Comment on the primary intended audience of the financial statements. What other groups that may be interested in the financial information released by the company? Discuss.

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https://brainmass.com/business/financial-statements/accounting-terms-equations-and-intended-audience-519744

Solution Preview

I can't write your case for you, but I can explain each part and provide you with discussion so that you understand each section. Let's discuss each of your areas:

PART I

- Generally Accepted Accounting Principles (GAAP): GAAP comprises the principles, rules, and regulations that companies must follow when preparing financial statements. The Financial Accounting Standards Board (FASB) prepares the Statements on Financial Accounting Standards (SFAS) in all accounting areas - these are what comprise GAAP. GAAP is enforced by multiple authoritative bodies, including the FASB, the PCAOB, state boards of accountancy, and the SEC.

- GAAP is important to financial statements for a few reasons. Before GAAP, we had events like the stock market crash followed by the Great Depression, and other instances where investor confidence basically fell to below zero. The public screamed because there was (1) no consistency in financial reporting and (2) no confidence in financial reporting. GAAP was created to establish responsibility, consistency, and objectivity. Companies could no longer hide transactions, not report certain events, etc. GAAP forces companies to be accountable through their financial statements.

- IFRS: The International Financial Accounting Standards are similar in comparison to GAAP except they're used by various countries on a global basis. Whereas the U.S. is bound to GAAP, other countries have adopted IFRS and are bound to IFRS. There has been much activity in recent years surrounding a convergence to IFRS. This likely won't happen (even though they still say it will). There is a major difference between the two systems. GAAP is very principle based - we have a guideline and instruction on how to do just about everything. IFRS is not rule based, its principal based. This means that in many areas, there is no concrete guidance. This would not be a positive step due to the amount of problems it would ...

Solution Summary

This solution discusses each of the areas listed in parts I, II, and III. All accounting concepts are explained for the SLP.

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