businesses assume that accountants are
bound by generally accepted accounting
practices and that these are inviolate,
nothing could be further from the truth.
Everything is subject to interpretation,
and GAAP is no different. For one thing,
GAAP themselves permit alternative
accounting methods to be used for
certain expenses and for revenue in
certain specialized types of businesses.
For another, GAAP methods require that
decisions be made about the timing for
recording revenue and expenses, or they
require that key factors be quantified.
Deciding on the timing of revenue and
expenses and putting definite values on
these factors require judgments,
estimates and interpretations.
The mission of GAAP over the years has
been to standardize accounting methods
in order to bring about uniformity
across all businesses. But alternative
methods are still permitted for certain
basic business expenses. No tests are
required to determine whether one method
is more preferable than another. A
business is free to select whichever
method it wants. But it must choose
which cost of good sold expense method
to use and which depreciation expense
method to use.
For other expenses and for sales
revenue, one general accounting method
has been established; there are no
alternative methods. However, a business
has a fair amount of latitude in
actually implementing the methods. One
business applies the accounting methods
in a conservative manner, and another
business applies the methods in a more
liberal manner. The end result is more
diversity between businesses in their
profit measure and financial statements
than one might expect, considering that
GAAP have been evolving since 1930.
The pronouncement on GAAP prepared by
the Financial Accounting Standards Board
(FASB) is now more than 1000 pages long.
And that doesn't even include the rules
and regulations issued by the federal
regulatory agency that jurisdiction over
the financial reporting and accounting
methods of publicly owned businesses -
the Securities and Exchange Commission
This was part
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