If each one involved in the process of accounting followed their own procedure, or no routine at all, there’s be no way to really tell if an organization was worthwhile or not. The largest part companies go along what are called generally accepted accounting principles, or GAAP, as well as you can find huge tomes in libraries and also bookstores dedicated to simply this solitary matter. Unless a firm states otherwise, anybody reading a financial statement can make the assumption that company has used GAAP.
If GAAP aint the principles used for preparing financial statements, then a company must clarify which additional type of accounting they’re used plus are sure to avoid using titles in its financial statements that can mislead those examining it.
GAAP are the gold standard for preparing financial statements. Not disclosing that it has used principles other than GAAP makes a company legally liable for any misleading or misunderstood data. These principles have been fine-tuned over decades and have effectively governed centurion accounting company methods and the financial reporting systems of businesses. Different principles have been established for different types of business entities, such for-profit and not-for-profit companies, governments and other enterprises.
GAAP are not cut and dried, however. They’re guidelines and as such are often open to interpretation. Estimates have to be made at times, and they require good faith efforts towards accuracy. You’ve surely heard the phrase “creative accounting” and this is when a company pushes the envelope a little (or a lot) to make their business look more profitable than it might actually be. This is also called massaging the numbers. This can get out of control and quickly turn into accounting fraud, which is also called cooking the books. The results of these practices can be devastating and ruin hundreds and thousands of lives, as in the cases of Enron, Rite Aid and others.