Generally Accepted Accounting Principles, Essay Example

Financial experts use GAAP (generally accepted accounting principles) to record and report any financial details. GAAP entails a detailed set of principles established by the financial professionals and SEC (Securities and Exchange Commission). The two acts enacted in 1934 and 1933 give mandate to SEC to put up disclosure and reporting requirements. Even so, SEC acts as an oversight body; thus, giving a chance to Governmental Accounting Standards (GASB) and FASB to put up the requirements. Currently, the established principles used by accountants fall under certain assumptions. In the view of Fidelity Investments Company, GAAP will be very essential to analysts considering it deals with investments worth billions of dollars.

Financial statements prepared in accordance with GAAP and audited by an independent CPA will be useful to Fidelity’s investment analysts for numerous reasons. Firstly, while using GAAP financial experts are expected to abide with some technical standards (Bragg, 2010). Additionally, the analysts will manage to access the past financial documents of the company. Arguably, the GAAP has a full disclosure principle, which will assist analysts to know any pending court case, incomplete financial transactions and have access to other conditions that may affect the financial status of the company. This principle requires that analyst must be allowed to have access to such details (Sarah, 2012). GAAP has a principle that can be useful to analysts in arriving at a decision on whether the company should continue to operate or not depending on its consistency, reliability, and relevance. The GAAP helps to provide consistent information regarding diverse accounting periods, between Fidelity Investments Company and other companies. The analysts will manage to determine the extent some equipment used by the company will serve by use of the conservatism principle. It is easy for them to determine the costs and losses, and estimate the amount that machines used in the company can consume in terms of repairs. If audited by an independent CPA, it will be helpful using GAAP to determine the period the company will remain in business. The principle of going concern will help to identify liabilities and assets and categorize them in short term and long term (Bragg, 2010). GAAP is influenced by certain organizations namely Securities and Exchange Commission, Governmental Accounting Standards (GASB), and FASB. SEC is an organization owned by the federal government, with the principle role of enforcing the security laws in the security industry, the options exchanges, and stocks among other issues. SEC is responsible for other acts such as Investment Act passed in 1940, something that touches dearly on the activities conducted by Fidelity Investments Company (Markopolos, 2010). In the case of this company, SEC will expect it to abide with the statutory requirements and surrender some annual and quarterly financial reports, besides other periodic reports. GAAP is influenced by FASB (Financial Accounting Standards Board), a non-profit board recognized for developing principles for use in accounting. SEC established FASB to establish standards of accounting that public organization in the United States should follow. FASB has several goals, among them educating people on the importance of keeping financial reports in a business.

References

Bragg, S. (2010). The Vest Pocket Guide to GAAP. 3^RD ED. New York, NY: John Wiley & Sons

Markopolos, H (2010). No One Would Listen: A True Financial Thriller. New York, NY: John Wiley & Sons.

Sarah N. Lynch (2012). IFRS Primer International GAAP Basics. New York, NY: Routledge Publishers