Principles of Accounting - Terms, Accounting Equation, Audience of Financial Statements
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Part I. Discuss the terms listed below. Your discussion should expand on the definition. 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
- 10-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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Generally Accepted Accounting Principles (US GAAP):
GAAP is the set of rules and procedures that regulate the accounting industry and are used in uniformity in the United States, within the accounting industry. Companies prepare their financial statements according to GAAP. This leads to a continued uniformity in financial statement reporting. It is important that all financial statements follow GAAP for additional reasons, including transparency. When a company's financial statements have not been prepared in accordance with GAAP, the auditor must state so when they issue their opinion.
Additional resource:
http://accountinginfo.com/financial-accounting-standards/asc-100/105-gaap-history.htm
International Accounting Standards (IFRS):
IFRS are principle based standards, whereas GAAP is a numbers-based or computation-based standard. IFRS is regulated by the International Accounting Standards Board (IASB). There are four main parts to IFRS, including (1) International Financial Reporting Standards (IFRS), (2) International Accounting Standards (IAS), (3) Standing Interpretations Committee (SIC), and (4) Conceptual Framework for Financial Reporting. There has been considerable debate lately as to if the U.S. should move to IFRS accounting, and abandon traditional GAAP accounting. There are many problems with the convergence. The financial statements are prepared differently under IFRS, and this would mean that while financial statements would be prepared under international standard in uniform across the world, most users and preparers are not prepared to fully understand IFRS principles, and this may mean to a big interpretation of financial statement data if IFRS is enacted.
Additional student resource: http://www.ifrs.com/
Securities and Exchange Commission (SEC):
The SEC, along with the FASB, regulates ...
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