GAAP

• Criteria for a principle to become generally acceptable

  • Principle of Relevance
  • Principle of Objectivity
  • Principle of Feasibility
• Principle of Relevance


  The resulting information is meaningful and useful to those who need to know something about the status of a certain organization
• Principle of Objectivity


  The resulting information is not influenced by the personal bias or judgment of those who furnish it. Objectivity connotes reliability and trustworthiness. It further connotes verifiability, which means that there is some way of finding out whether the information is true and correct.
• Principle of Feasibility


  It can be implemented without undue complexity or cost
• The criteria for a principle to become generally acceptable are conflicting with one another and to resolve, the one which may be least objective and least feasible is favored
• The preparation of financial statements is governed and guided by Generally Accepted Accounting Principles (GAAP)
• Generally Accepted Accounting Principles (GAAP)


  Uniform set of accounting rules, procedures, practices and standards that are followed in preparing the financial statements. They serve as "ground rules" that guide accounting practitioners in recording (identifying, analyzing and measuring) and reporting financial information of a business entity.
• Requirements for an accounting principle to become generally accepted


  • It must have been established by a standard-setting body and must have gained world-wide or universal acceptance among practitioners
  • It must have substantial authoritative support from accounting bodies, such as Securities and Exchange Commission (SEC), Financial Executive Institute of the Philippines (FINEX), Bangko Sentral ng Pilipinas (BSP), Board of Accountancy (BOA), Commission on Audit, (COA) and other respectable members of the financial community both locally and internationally
• Technical papers and publications of accounting educators are also included as source of GAAP
• The Bureau of Internal Revenue (BIR) is also influencing in GAAP preparation, although provisions of Internal Revenue Code (IRC) do not always reflect the goals of financial accounting, they do at times influence in choice of accounting methods and procedures
• In the Philippines, the development of GAAP is formalized through the creation of the Accounting Standards Council, now Philippine Financial Reporting Standards Council (PFRSC), a standard-setting body with its pronouncements contained previously in the Statement of Financial Accounting Standards (SFAS), now Philippine Accounting Standards (PAS) used as the primary source of GAAP
• Cost Principle


  Assets should be recorded at original or acquisition cost
• Objectivity Principle


  Accounting records should be based on reliable and verifiable data as evidence of transactions
• Materiality Principle


  Practicability to rule over theory in determining the valuation of an item. To determine whether the item is material or not, it is a matter of professional judgment on the part of the accountant
• Matching Principle


  Revenue should be recognized when earned and corresponding expense should be recognized when incurred during the same period as revenue is earned. Proper matching of revenue and expense are called for.
• Consistency Principle


  Accounting methods and procedures should be applied on a uniform basis from period to period to achieve comparability in the financial statements. However, per PAS No.1, Presentation of Financial Statements, it allows changes if justifiable and disclosed in the financial statements, that is, when there is a significant change in the nature of the business operation or when a new PAS or Interpretation so requires.
• Adequate Disclosure Principle


  Financial statements should be free from any material misstatement, that if there is any, proper disclosure should be made.
• Per revised Philippine Accounting Standards (PAS) No. 1, Presentation of Financial Statements, the presentation and classification of items in the financial statements should be retained from one period to the next unless:

  1. it is apparent, following a significant change in the nature of entity's operation or a review of its financial statement presentation, that another presentation or classification would be more appropriate having regard to the criteria for the selection and application of accounting policies in Philippine Accounting Standards (PAS) No. 8, Accounting Policies, Changes in Accounting Estimates and Errors; or

  2. a Philippine Financial Reporting Standards (PFRS) requires a change in presentation.