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A generally accepted accounting principles (GAAP) disclosure is a financial disclosure which reveals information about an organization’s status regarding the guidelines of the Financial Accounting Standards Board (FASB). It is actually a series of different statements covering areas such as income tax, risk, and contingencies. There are several different kinds of GAAP disclosure. Some are required and others are recommended.
In the early 1930s the Securities and Exchange Commission (SEC) in the United States of America gained the authority to require businesses to disclose certain factors of the manner in which they did business. The SEC gave the FASB the power to develop these requirements, thus giving birth to the GAAP disclosure. This information must be submitted to the government at scheduled intervals.
The purpose of a GAAP disclosure is to ensure that businesses are acting legally and using appropriate accounting practices. It is meant to show whether or not the company is on the right track. This includes determining whether the business is in danger of violating regulations due to the direction of its current activity.
One of the most important aspects of GAAP disclosure is the full disclosure requirement. This is a government regulation which states that all significant issues currently or soon affecting the financial status of a business must be included in statements. This includes conditions which can affect a company’s productivity and cash flow, such as legal problems. Money issues such as incomplete transactions must also be disclosed.
The type and number of GAAP disclosures that an organization must make depends upon the nature of the company. An accountant will often research requirements and prepare a checklist of which areas must be addressed. As regulations will periodically change, it is advisable to update this checklist before every reporting period.
It can take some skill to appropriately prepare GAAP disclosures. This is primarily because several of the regulations are open to interpretation. One issue to consider is whether the information disclosed is accurate. An accountant may present information in the wrong way, whether or not by design. It is also important that all information reported is complete so that reviewing parties will be able to make an accurate assessment of the company’s status.
There are several ways a company can improve the accuracy and completeness of its GAAP disclosures. The first step is to hire ethical, experienced accounting staff members who possess a clear understanding of GAAP requirements and recommendations. Then it is advisable to ensure that these professionals have the necessary resources to stay updated on all changes to GAAP disclosure requirements, in addition to providing continuing education on the process as necessary.
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