Financial reporting is the communication of accounting and commercial activities in a business to an outsider. It can be done in the form of press releases, auditor reports, shareholder minutes, management letters and analysis and financial statement notes. Financial reporting is essential as it provides an overview of the revenue allocation, uses, and income in a business. It is presented in cash flow statements, balance sheet, income statements, and owner’s equity statements ( Kieso, Weygandt, & Warfield, 2019) . When the financial status of a company is reported, it guides the management, investors, and creditors in decision making. Investors require the financial reports to establish if investing money in the company is a benefit.
Generally Accepted Accounting Principles (GAAP) is a guide used by bookkeepers in collecting and sharing financial data. The principles were established by the Securities and Exchange Commission (SEC) through the 1933 Securities Act and 1934 Securities Exchange Act. There are various technical standards the accountants are required to follow when making the financial analysis. The monetary unit assumptions guide on the stable current that will be used in making the analysis. Economic entity helps compare how the business is performing against the economic indicators. Other assumptions that need to be considered in accounting are full disclosure principle, cost principle, accrual basis accounting, and the principle of conservation.
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There are two primary sources of GAAP. The first is Governmental Accounting Standards Board (GASB) and American Institute of Certified Public Accountants (AICPA). These standards guide local and state governmental entities ( Ruppel, 2017) . GASB is a private and non-governmental organization, and the Financial Accounting Foundation (FAF) is in charge of the organization and funding its activities. AICPA is in charge of establishing ethical standards and auditing standards for non-profit groups, federal, private, state, and local governments. Accounting professionals are required by AICPA to have professional standards, follow a specific ethical code, and ensure that reporting is aligned with public interests.
References
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting . John Wiley & Sons.
Ruppel, W. (2017). Wiley GAAP for Governments 2017: Interpretation and Application of Generally Accepted Accounting Principles for State and Local Governments . John Wiley & Sons.
