Hello, class.

Generally Accepted Accounting Principles (GAAP) is a U.S. financial reporting system. It was created to ensure that all publicly traded businesses follow the same rules and principles when preparing financial reports. It helps remove the possibility of fraudulent reporting. This allows lenders, investors and shareholders to have an accurate understanding of the financial standing of a business. It also makes it easy for companies to compare how they stack up against other similar companies. These are the advantages, but there are also disadvantages.

GAAP is only used in the U.S.. It's not helpful when dealing with businesses from other countries. Their rules and principles are different. It, also, can be costly for smaller businesses to use. They would have the added cost of needing to hire an accountant that understood GAAP.

A global financial reporting standard is the International Financial Reporting Standards (IFRS). It's not rule based like the GAAP. It's designed with the understanding that there are different ways to get to the end result. It also allows for more potential for misleading financial reporting. No specific, strict rules. While this is better for businesses with companies in different countries, it is yet to be a standard practice across the board.

Ideally, as more and more organizations operate in multiple countries, a global standard would be more beneficial.

Amanda K.

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