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This is because GAAP ensures consistency in reporting in all businesses, making the financial reports that are produced complete and comparable. In addition, GAAP is important for external activities such as raising capital, public trading, preparing for a transaction, or even competitive comparisons. Because GAAP ensures consistency, it also means business leaders can more accurately compare company performance month over month. This is important to business leaders because it gives a complete picture of the company’s health. It ensures that a company’s financial records are complete and homogeneous. The purpose of GAAP is to create a consistent, clear, and comparable method of accounting. *If there are ever any changes in the standards used in accounting, the finance professional is expected to fully disclose this change and explain the reasons behind this change in the footnotes to the financial statements. Principle of Utmost Good Faith. All organizations should be honest and complete in their financial reporting.The financial reports for a company should provide full disclosure and present the organization’s genuine financial position. This principle refers to the standardization of time periods for financial reporting-such as annually, quarterly, or monthly. Principle of Continuity. This means that all assets should be valued based on the assumption that the company will continue to operate moving forward.Principle of Prudence. All aspects of financial reporting should be fact-based, reasonable, and prudent-not based on speculation.An asset should not be used to offset (compensate for) a liability. Principle of Non-Compensation. This principle means that all aspects of an organization’s finances should be reported.Principle of Permanence of Methods. Like the principle of consistency, the principle of permanence states that uniform procedures and practices should be applied in financial accounting and reporting to ensure comparability. ![]()
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