Using GAAP, accountants are then able to report the financial performance of a company over a period of time, typically a fiscal year. Some aspects it covers are: procedures on income, expenditures, financial statement presentation, liabilities and assets, and foreign currency. GAAP is a set of principles, standards, and procedures that are applied through the use of an accrual accounting process by an AP department. Knowing what GAAP is and why it is beneficial to your company as a reporting option will make a difference for company growth, investor speculation, and auditor review. As a result of the Securities Exchange Act of 1934, the General Accepted Accounting Principles (GAAP) became a set of principles and regulations established to standardize how companies reported on their finances. Among legislation and regulatory boards created to combat the Great Depression, the need for standardized methods of reporting financial data was identified. With the stock market crash of 1929, questions on the ethics and accuracy of financial reporting made by publicly traded companies arose. Project management software provides revenue recognition and cost accounting capabilities that can simplify and streamline GAAP compliance.Knowing what GAAP is and why it is beneficial to your company as a reporting option will make a difference for company growth, investor speculation, and auditor review. Revenue recognition and cost accounting are two areas that are particularly challenging with GAAP accounting. Advanced operational control software can also categorize work types (expensed or capitalized) within a project based on milestones, phases or at the task level. A project initiation workflow accomplishes the above. Whether a project is to be capitalized or expensed must be determined in this early stage to ensure that all subsequent progress and risk reports, and interim financial reports properly classify this project as a balance sheet (and asset classes that should be depreciated according to regulations) or an income statement (an expense) item. To prevent threat the company should determine the nature of the project as part of the project initiation process and whether the project costs are material. Solutions to the above threats could be facilitated with automated tools. Inaccurate revenue reporting may lead to Sarbanes-Oxley Section 404, noncompliance and audit failure. Companies may be understating their expenses by capitalizing projects that should not be capitalized according to GAAP. For example, SOP 98 mandates a company to capitalize certain types of software projects. Companies may be overstating their expenses. Organizations face a number of threats from ineffective systems to ensure compliance. For example, an organization with offices in Europe, Canada and the United States would be required to comply with each country’s version of GAAP. Global organizations face even greater challenges, as they must comply with various governing bodies and regulations. Compliance violations may also occur for project-related matters such as revenue recognition, work in progress and what projects to capitalize or expense. Compliance threats can jeopardize projects, its executives and the company whether they are intentional or unintentional violations of government, industry and accounting regulations, (such as employment wage laws, family and medical leave act, and generally accepted accounting principles). Organizations must have effective systems for project governance and compliance. Due to globalization, international financial reporting standards are required and established by the International Accounting Standards Committee. Every country has their own version of GAAP with standards set by a national governing body. It includes the standards, conventions and rules that accountants follow in recording and summarizing transactions, and in the preparation of financial statements. GAAP, (Generally Accepted Accounting Principles), is the standard framework of guidelines for financial accounting.
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