The Importance Of Generally Accepted Accounting Principles

The Generally Accepted Accounting Principles also known as GAAP was adopted by the U.S. Securities and Exchange Commission (SEC). GAAP is a set of accounting principles public companies have to follow when preparing financial statements that are useful for creditors and investors. Financial Accounting Standards Board (FASB) has developed a framework to increase the effectiveness of disclosure footnotes. The financial disclosures can be required by GAAP or by the management team when preparing the financial statements. The disclosure notes in the financial statements are explanatory and supplemental notes that accompany the financial statements issued by an entity. This financial report will discuss the purpose of disclosure notes, the disclosure …show more content…
Disclosures about significant accounting policies are important for users of financial statements such as investors, creditors, and vendors to understand how the accounting policies were used while preparing the financial statements. For example, investors would like to know what kind of depreciation method was used so they can compare it to other companies, this will be useful for them while they are making a decision to invest in a company or not. Companies should disclose these significant details that are important in determining their financial position and the changes in the financial position. Some examples of what can be included in a significant accounting policy are goodwill, operating cycle, intangible assets, inventory valuation (LIFO, FIFO, or weighted average). Overall it is useful to disclose significant accounting policies for outside …show more content…
Under GAAP financial statements have to include disclosure notes for the effects of subsequent events. If there is a subsequent event that provides new information but it does not exist in the balance sheet date then the entity should not recognize it in the financial statements. A company should just disclose the date through which there has been an evaluation of subsequent events as well as the dates when the financial statements were issued. There are two types of subsequent events recognized and non-recognized. Recognized subsequent events provide evidence about conditions existed at the balance sheet date and non-recognized subsequent events provide evidence about conditions that did not exist at the balance sheet date. FASB has also stated that events after the reporting period should also be included in the disclosure notes. The Board has stated that this disclosure is necessary for users of the financial statements. In conclusion it is important to disclose information about subsequent events under the disclosure