Question

What is GAAP, and why is necessary or useful? 6. Who/what is the SEC? 7. What is the FASB, and why is it necessary or useful?

Answer 1

Part 5

GAAP refers to generally accepted accounting principles. It is collection of standards and rules related to financial reporting. Without GAAP, it would have been difficult for managers and investors to interpret financial statements to make investment decisions. It provides standardize accounting methods, standards for reporting and presentation of accounting information. This enhances the scope of comparability of financial statements. Moreover, it also emphasizes on the other elements like consistency, relevance and reliability.

Part 6

SEC refers to the U.S. Securities and Exchange Commission. It is a federal agency focusing on the regulation of the U.S. stock market. It is necessary because it focuses on capital formation along with the protection of investors and ascertains fair and efficient markets by proper regulation.

Part 7

FASB refers to Financial Accounting Standards Board. It is private, not not-for-profit organization. The FASB is authorized to develop GAAP. The accounting standards set by the FASB affects the various accounts like inventory, revenues, assets, tax, etc. It frames the accounting and reporting standards for private and public companies. The main objective of FASB is provide useful information to stakeholders in easy and effective manner.