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Why is it permissible to violate generally accepted accounting principles when preparing reports used strictly by...

Why is it permissible to violate generally accepted accounting principles when preparing reports used strictly by company management?

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Generally Accepted Accounting Practices

(GAAP)

GAAP are the common set of accounting principles, standards and procedures that are used by accountants to prepare the financial statements. They are derived from practice, and on being useful get accepted into the accounting system. These principles are developed by the professional accounting bodies of different countries of the world, with the aim of attaining uniformity in accounting practiced by the entities of the respective countries.

Some cases unders which it is permissible to Violet GAAP

  • Due to materiality principle of accounting an accountant may be allowed to disregard GAAP if the variance amount is insignificant.Professionals judgement is required in each situation to decide whether an amount is immaterial or not and what effect would it have on financial statement.

  • On the basis of principle of conservatism if a situation involves two acceptable alternatives the accountant can choose that alternative which results in lesser net income without violating other provisions of GAAP.

  • If violation of GAAP results in better presentation of financial statement then it doesn't account to violation of GAAP.

  • Violation of GAAP is allowed if law set some different rules for the same situation.

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