Question

Why do you believe it is important for auditors to enforce rules (i.e. GAAP) when managers are disclosing financial accounting information to outside stakeholders, such as shareholders and bondholders?

Answer 1

Ans Importance of GAAP Generally Accepted Accounting Principles GAAP) Generally accepted Accounting Principles refer to a common set of accounting principles, standands, and procedures issued by the financias Accounting Standands Bound (FASB j. GAAP is a combination of authoritative standands (set by policy boards) and the commonly accepted ways of reconding and reporting accounting information GAAP aim to improve the clarity consistency, and comparability of the communication of financios information. - If a financial statement is not prepared using GAAP investors should be cautious Without GAAP, Comparing financial statement of different companies would be extremely difficult, even within the same industry, making an apples to apples comparison hand. - As a result financial statement will not provide the adequate information about the entity. It will difficult to understand the financial statements. Then the financial statements will have low acceptability by the investores, Govt., public etc.

Therefore, when the accounts are audited loy the auditor, the auditon should see that whether the financial accounts are prepared in accordance with GAAP. Therefore it is important for auditors to enforce rules (.e GAAP) when managers are disclosing financial accounting information to outside a stakeholders, such as shareholders and bondholden Gout etch