Generally Accepted Accounting Principles (GAAP) are a set of rules and guidelines that were created so that there would be uniform financial reports filed by publicly traded companies. As financial reports have a large impact on an investor’s decision, the GAAP has been important in creating consistency, fairness, honesty and accuracy in the measurement and disclosure of financial information.
Without GAAP’S regulatory principles in place, companies would have been able to present their financial information in any method or format that suited them, which could result in investors being misled. It is believed that the Great Depression in America (1929) was greatly due to false and manipulated reporting practices among businesses in hopes to gain investors. To prevent this from occurring again, rules and principles for financial reporting was created, which became GAAP. In 1973, the Financial Accounting Standards Board (FASB) was formed to take over GAAP’s determinations.
Made up of 7 full-time impartial members, the role of The FASB board is to ensure that the wishes and interests of the public are best represented. The FASB is not the only financial monitoring body but it itself is monitored by the thirty-person Financial Accounting Standards Advisory Council (FASAC). By creating a cohesive and streamlined approach for companies to report their financial statements, investors are able to identify what it is that they are looking for and properly evaluate a company or potential investing opportunity.
LehmanBrown has extensive experience working with entities utilizing US GAAP and those using GAAP from another region. Our strong international elements help us, throughout China and Hong Kong, offer an all-rounded expertise in any accounting standard that is required.
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