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Why companies should follow GAAP Guidelines

Updated on July 16, 2012

The Generally Accepted Accounting Practices (GAAP) are a set of guidelines that are used by most companies. These guidelines were put into effect to guarantee a level of consistency and accuracy to financial statements. Although there is no laws forcing companies to use this type of accounting practices, a company cannot be publically owned in America without complying. Taxes paid to the Internal Revenue Service will also have to follow these guidelines to ensure a positive outcome to an audit. If companies are found to have false documents, no one will buy their stock, bleeding the company of their cash flow to continue to operate. Many companies need the public’s money to stay afloat and will not jeopardize the large income by going against the GAAP rules. By using sanctions and exposure, government’s attempt to ensure proper accounting practices by making a board specially designed to audit major companies in light of several accounting scandals in major corporations. GAAP procedures also help a company to have comparable financial statements to compare with others in their industries. Information in another form could be less useful in making decisions for internal users, as well as hindering deals with external users that will not see the information as effective.


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