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If you are studying to become an accountant, you are going to spend a lot of time covering the Generally Accepted Accounting Principles, also known as GAAP.
While the GAAP is something that is thoroughly covered in both 2-year and 4-year accounting programs, you may be a proactive student who wants to get a leg up on your peers. Here’s what you need to know before you enroll in school:
What is the Standard Definition of GAAP?
GAAP is a set of principles that all financial accountants and companies must comply with when they perform financial activities in the United States. At a broad level, the GAAP is a thick book of standards, guidelines, principles, and generally accepted business practices in the nation. It is the Financial Accounting Standards Board that will review standards and make changes when necessary.
Why is it So Important for Accountants to know the GAAP?
The set of accounting principles that is set by the FASB is not just something that you can choose to ignore. Since these are authoritative standards that apply to everyone working in the field, it is crucial that you know the GAAP inside out. The purpose of the principles and standards is to make recording and reporting practices standard from company to company and industry to industry. This ensures that it is easy to audit a company or review a company’s financial statement if investors want to invest in stock.
What are the International Financial Reporting Standards?
The International Financial Reporting Standards, also known as IFRS, are the universal financial reporting standards that are used internationally. Only the US uses the standards that are found in the GAAP and more than 110 countries use the guidelines laid out by the IFRS. The IFRS is more about principles and the GAAP is more about laying out rules.
What Are the Drawbacks of the GAAP?
GAAP guidelines and reporting rules most definitely help businesses maintain consistency when they are drafting financial statements or presenting their current financial situation to creditors and investors. While these standards help reduce the risk of claims of misrepresentation, there are also drawbacks.
One of the biggest drawbacks is that the U.S. is the only country that uses these guidelines. Since they are unique to the U.S., it is difficult for multi-national companies to stay consistent with all of their financial information. Some of the information will follow IFRS guidelines and some will follow the GAAP guidelines. Since this has become a major problem with the economy becoming more global, the US is expected to adopt the IFRS by the end of 2017.
There are far too many GAAP guidelines to list them all. You will study all of these principles and practices in detail so that you are a skilled accountant. As you compare accounting programs, make sure that you spend time comparing graduation rates, professors, and accreditation status. The key is to find a program that is accredited by the Association to Advance Collegiate Schools of Business so that you can ensure that you cover core concepts like Generally Accepted Accounting Principles before you graduate.