Fidelity Investments Company is a well-known mutual fund investment company. It makes investments worth billions of dollars in companies listed on the New York Stock Exchange and other stock markets. Generally Accepted Accounting Principles (GAAP) are very important for Fidelity’s investment analysts.
What are GAAP?
Generally Accepted Accounting Principles are considered to be the common set of principles and Standards related to accounting, which companies are required to follow during the formulation of their financial statements. It is mandatory for companies to follow Generally Accepted Accounting Principles during the formulation of their financial statements. These standards are authoritative standards which are issued by the policy boards, and they are closely associated with recording as well as reporting of accounting information by the companies. These standards and principles help the companies make their accounts clear to the shareholders and stakeholders for effective communication of financial information. It is important to have clarity in communication of financial information to make sure that the stakeholders and shareholders are in a better position to make effective decisions related to their investment (Bragg, 2010).
It is mandatory for companies to have proper compliance with Generally Accepted Accounting Principles if the financial statements of the company are being circulated outside the company. Publicly traded companies must follow these rules and regulations, and they should also follow other rules and regulations formulated by the Securities and Exchange Commission. Generally Accepted Accounting Principles are mostly associated with concepts like revenue recognition, item classification in the balance sheet, and outstanding share measurements. It is important for the investors to take decisions caution if the financial statements are not prepared according to Generally Accepted Accounting Principles.
Why are financial statements that have been prepared by GAAP and audited by an independent CPA useful for Fidelity’s investment analysts?
There are different advantages of following Generally Accepted Accounting Principles by companies in the formulation of their financial statements. One of the most significant advantages is that these standards and principles formulate the basis for international accounting standards. Is Generally Accepted Accounting Principles are followed properly then it becomes easy for that specific company to implement International accounting standards while formulating their financial statements. It is important for an independent certified accountant or auditor to audit the financial statements of the company to provide an independent opinion regarding the true and fare information disclosed in the financial statements of Fidelity Investments Company. It is significant for the management to make sure that all the information provided in the balance sheet, income statement, cash flow statement, statement of owner’s equity and notes to the account should provide accurate and realistic information to stakeholders and shareholders.
It is important for the auditor of Fidelity Investments Company to make sure that all the material information has been properly disclosed in the financial statement so that shareholders could make effective decisions. Formulation of financial statements by using Generally Accepted Accounting Principles allows the financial information to have standardized Outlook and uniformity which are important to compare the financial statements of different companies with each other (Bragg, 2010).
What organizations influence GAAP? Explain how they do so.
Different organizations are responsible for influencing the formulation and implementation of rules associated with Generally Accepted Accounting Principles. The financial accounting standards board is responsible for influencing Generally Accepted Accounting principle in the United States. Organizations like the American Institute of certified public Accountants as well as the internal revenue service and the Securities and Exchange Commission are also responsible for influencing the rules associated with Generally Accepted Accounting Principles. It is important for Generally Accepted Accounting Principles to be formulated according to the guidelines provided by these mentioned organizations.
Generally Accepted Accounting Principles in United States are different as compared to other countries but organizations like international accounting standard board and financial accounting standard board are working closely with authorities of Generally Accepted Accounting Principles in the United States to make sure that International accounting standards are formulated to have uniformity and compatibility between financial statements of different companies operating in different countries around the globe. It will also help to enhance the level of globalization, and foreign direct investment as investors at international level will be able to compare and analyze the financial statements of different companies in different countries (Wilkinson, 2013).
References
Bragg, S. M. (2010). Wiley GAAP: Interpretation and Application of Generally Accepted Accounting Principles 2011 (9 ed.). John Wiley & Sons.
Wilkinson, J. (2013, July 25). Generally Accepted Accounting Principles (GAAP). https://strategiccfo.com/generally-accepted-accounting-principles-gaap/
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