Many businesses are extending their networks to foreign markets amidst an ever-changing global financial environment. In order to ensure business growth and development in the global market, it is important to ensure financial viability by carrying out effective and efficient financial reporting (Godfrey, 2007). Recently, international financial bodies in the country have engaged in continuous debate about US GAAP and IFRS financial reporting standards, and the increased demand for convergence between the two systems continues to be a high priority issue on the agenda of international financial policy makers.
GAAP Standards.
Generally Accepted Accounting Standards (GAAP) refers to a set of procedures and standards that business organizations in the global economy utilize in the compilation of financial statements. GAAP is a combination of commonly accepted ways of documenting and reporting financial accounting information and authoritative standards that are set by US policy boards like AICPA, FASB, GASB, and other public company accounting agencies. .
According to the GAAP financial standards, it is important that financial statements provide reliable information to creditors and investors in order to ensure rational decision making in investing, crediting, and financing business organizations (Godfrey, 2007). Moreover, these decisions involve timing and uncertainty about the flow of resources in organizations, and this should be reflected by financial statements. When the stakeholders in a business organization are contented and satisfied with their activities, financial reports should influence long term decisions through effectively and efficiently maintained records for basing financial decisions. In order to achieve the various objectives of GAAP, this framework is supported by assumptions, principles, and constraints. .
Assumptions.
One assumption in GAAP is accounting equity where the business is assumed to be a different entity from the owners and other business organizations (Shamrock, 2012).