1. Describe the purpose of U.S. generally accepted accounting principles (U.S. GAAP) and the benefits that these rules provide.
2. Explain the importance of U.S. GAAP to the development of a capitalistic economy.
3. Understand the role played by the Financial Accounting Standards Board (FASB) in the ongoing evolution of U.S. GAAP.
4. Discuss the advantages and the possibility of switching from U.S. GAAP to International Financial Reporting Standards (IFRS).
Question: Rules and principles exist within financial accounting that must be followed. They provide the standard
guidance necessary for achieving effective communication. For example, assume that a reporting organization
encounters an uncertainty (such as a lawsuit) and is now preparing financial information to portray the reality
of that event. When faced with complexity, how does the financial accountant know what reporting guidelines to
follow? How does a decision maker looking at reported information know what reporting guidelines have been
Answer: A significant body of generally accepted accounting principles (frequently referred to as U.S. GAAP)
has been created in the United States over many decades to provide authoritative guidance and standardization for
financial accounting. When faced with a reporting issue, such as a lawsuit, the accountant consults U.S. GAAP
to arrive at an appropriate resolution, one that results in fair presentation. If both the accountant and the decision
maker understand U.S. GAAP, even the most complex financial information can be conveyed successfully.