Essay on Generally Accepted Accounting Principles

Published: 2021-07-19 02:57:34
618 words
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Middlebury College
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Businesses owe the investors the responsibility of maintaining financial integrity. One way of expressing fiscal integrity is through the preparation of periodic reports and statements. The Generally Accepted Accounting Principles (GAAP) are a set of guidelines that provide standards and procedures that corporations must follow in compiling their financial statements. It is a composite of corporate policy standards and acceptable ways of financial recording and reporting (Reeve, Warren, & Duchac, 2012). The primary objective of GAAP is to set a corporate system that adheres to basic levels of financial statements consistency and allows the investors a comprehensive view of the companys fiscal performance before they can decide to invest in it (Epstein, Nach & Bragg, 2009). The statements should be easily analyzed by the investors and enhance making of comparisons of financial performance between different companies. GAAP consists of various aspects including identification of revenue, classification of balance sheet entries and identification of outstanding shares.

Fidelity investment companies are incredible mutual fund investment ventures that make great investments in businesses that are listed in stock markets. Therefore, financial statements prepared according to the GAAP form an important source of information for Fidelity Investment analysts. Nonetheless, these GAAP statements must be audited by an independent CPA for them to be of great importance (Reeve, Warren, & Duchac, 2012). The audit of the financial statements by a CPA is necessary since they are prepared by the management hence intentionally manipulate them to portray false information for own benefits. An audited financial statement is helpful to fidelity investment analyst as it is more reliable for making a financial decision than just a GAAP statement (Epstein, Nach & Bragg, 2009). The understanding of the audit of financial declarations of a CPA is the fact that he or she is not a company hence are not likely to compromise the performance of a company. From economic perspectives, the CPA is reliable, honest and express high levels of integrity. Based on these facts, the Fidelity investment analysts can be confident that the financial statements are correct. Ultimately, the records are considered accurate references for Fidelity Investment Analysts (Reeve, Warren, & Duchac, 2012).

Despite the fact that the CPA reserves the professional responsibility of protecting the public or investors from rogue company managers, there are also multiple other agencies that influence the GAAP either directly or indirectly. One of the organizations that affect GAAP is the Public Company Accounting Oversight Board (PCAOB). PCAOB is a government entity formed through the Sarbanes-Oxley Act. It regulates the practices in the field of accounting hence sets the standards that auditors should follow in assessing the financial status of businesses. If companies do not adhere to the PCAOB standards, then the agency has the authority to impose sanctions. Nonetheless, the Financial Accounting Standards Board (FASB) serves as the central institution that makes rules to be used in accounting (Epstein, Nach & Bragg, 2009).

The American Institute of Certified Public Accountants (AICPA) influences accounting procedures through the decisions of its senior technical committee. The Security and Exchange Commission (SEC) has the authority of the federal government to enforce all accounting practices. All the companies that offer their securities to the public must adhere to the stipulated standards set by FASB. With the continued expansion of financial markets, it is important to facilitate international cooperation in reporting through encouraging companies to embrace recommended accounting principles. The International Accounting Standards Board (IASB) is a global agency that serves to promote accounting principles among companies.


Epstein, B. J., Nach, R., & Bragg, S. M. (2009). Wiley GAAP 2010: Interpretation and application of generally accepted accounting principles. Hoboken, N.J: Wiley.

Reeve, J. M., Warren, C. S., & Duchac, J. E. (2012). Principles of accounting. Place of publication not identified: South-Western Cengage Learning.


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