Organizational Changes

Financial Accounting Standard Board (FASB) is basically a non profit, private organization whose objective is to develop the generally accepted accounting principles (GAAP) within the U.S. in the context of public interest. The financial accounting standards board is not a governmental body. The Securities and Exchange Commission has statuary authority for establishing the framework surrounding published accounts and reporting standards for publicly held companies as enacted by the Securities Exchange Act of 1934. FASB is the structural composition part which is independent of all the other businesses and professional organizations.

Prior to the creation of the present structure, the financial accounting and standards of reporting were established by the committee on accounting procedure of the American Institute of Certified Public Accountants and then by the accounting principle board. The FASB is subject to be overlooked by the financial accounting foundation which basically selects the members of the FASB.

Let us discuss how GAAP forms the basis of generally accepted accounting principles. These are not complicated as one would initially think. GAAP is just the parameters and rules established by the accounting practices board of the American Institute of Certified Public Accountants. It includes various methods and procedures of accounting which may not or may be set by the authority. These parameters help to make accounting procedures transparent and to assist investors and the creditors to get access to information.

There are various goals of GAAP. Some of these are as follows: To create a framework to make information accessible to potential lenders and investors.

To provide information regarding resources, funds and finance. It helps to provide information to assess the viability of loan applications.

While these are some of the goals of GAAP, there are other various principles behind GAAP. These are as follows:

Historical cost principle- A financial statement should be prepared by the companies related to the costs based on the acquisition of assets and not the fair market value. Therefore, through this principle, there is a standard benchmark for valuation.

Full disclosure principle- All information is disclosed as required. Revenue recognition principle- The statement should state the nature of the revenue whether earned or realized.

For implementing the GAAP rules, various assumptions are established as follows:

Going concern assumption: Indicating that the business is a long term affair.

Economic entity assumption: Business is an isolated and a separate entity that has a different identity from its owner. Monetary unit assumption: The stable currency that is used for recording the financial statements.

Periodic reporting assumption: There should be regular gaps between the reports of the business operations.

Thus, we can conclude that GAAP represents the principles of the financial accounting standards board.

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