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Objectives And Implement Fundamental Qualities Gaap

Referencing Styles : MLA | Pages : 1

The national governments of the different nations of the world had mandated various standards regulations or principles that the business enterprises operational in their nation are required to adhere to. These regulations or principles are important since they ensure that the business operations of the enterprises are as per the industry standards and also the regulations mandated by the national government of their operation.

GAAP is the acronym for Generally Accepted Accounting Principles and is also called by the name of U.S. GAAP. As a matter of fact, this is an accounting standard which was devised or formulated by the U.S. Securities and Exchange Commission (SEC).  More importantly, the different business enterprises operational in the nation of USA are required to follow these accounting standards for the conduct of their operations in the concerned nation.

The primary purpose behind the formulation of this accounting standard was to ensure the fact that all the business enterprises of the nation of USA follow the same accounting standards. As a matter of fact, over the years it had been seen that the diverse enterprises of the concerned nation had resorted to the usage of different varieties of accounting standards or processes This in turn made it very difficult for the national government to keep the official financial track of the different enterprises and many of the enterprises took advantage of this to evade taxes as well.

The major stipulations of the U.S. GAAP were published or for that matter released by the national government of USA in Extensible Business Reporting Language (XBRL) in the year 2008. Some of the most important financial guidelines of GAAP as stipulated by the national government of USA are listed below-

  • The business enterprises were mandated to reveal important information regarding their creditors, investors, sources of funding and others in their annual reports and other official reports published by them which the national government can easily access them
  • The financial information should be revealed in a timely and proper manner so that it can benefit both the investors and also the national government
  • The financial information should help the business enterprises and also the investors to make important financial decisions and long-term plans regarding the enterprise
  • The financial information should help the enterprise and other stakeholders to maintain adequate records and also help in the improvement of the performance of the enterprise

In addition to these precepts, it had been seen that the GAAP also proposed four major principles that the business enterprises are required to follow. These four important principles are listed below-

  • Historical Cost Principle: As per this principle, the business enterprises rather than merely offering information regarding their fair market value are also required to reveal important information regarding their assets, the acquisitions that have undertaken and others. These information help in the effective analysis of the financial value of the enterprises.
  • Revenue Recognition Principle: According to this principle, the business enterprises are required to record the exact sources of revenue or the revenue that they earn rather than just the revenue that they had received. This in turn reveals insightful information regarding the exact revenue earned by the enterprises.
  • Matching Principle: This principle of the GAAP mandated that the business enterprises should try to match the expenses that they are spending with the overall revenue generated by them. This is important to ensure the long-term growth and the profitability of the enterprises.    
  • Full Disclosure Principle: This principle stated that the business enterprises are required to reveal exact pin-point data regarding the funding or the investment that they receive, the profit made by them, the expenses spent by them and others.

The benefits offered by GAAP notwithstanding there are four major constraints of the same which are listed below-

  • Objectivity Principle: According to this principle, the financial information or the data revealed by the accountants of a business enterprise should be based on objective evidence rather than qualitative data regarding the same
  • Materiality Principle: The business enterprises should judge or analyse the value or the significance of an entity at the time of its reporting rather than at the time of their convenience. For example, an entity is considered to be of value or significance only when it directly affects the reasoning faculty or the decision making process undertaken by the concerned individuals  
  • Consistency Principle: The business enterprises are required to follow the same accounting standards at all points of time rather than changing the accounting standards as per time or their convenience
  • Cost Constraint: The benefits offered by the process of financial reporting or accounting should always be greater than the cost incurred by the business enterprises for doing the same

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