The Evolution and Importance of Generally Accepted Accounting Principles

Introduction
GAAP is the acronym for Generally Accepted Accounting Principles. GAAP includes universally accepted guidelines and procedures to properly yield accepted accounting standards and financial reporting’s within companies. The universality of GAAP ensures that there is some sort of consistency with the preparation each company’s financial statements that may include, balance sheets, income statements, and statements of cashflow. Therefore when comparing and analyzing financial records, a set standard followed to achieve stability from one company to the next.

This paper will focus on a brief history of GAAP and how the widely known accounting procedure was established. Additionally it will focus on the four assumptions and four principles of accounting that work together to comprise GAAP. Furthermore, there will be an emphasis on the importance of using GAAP in accounting practices and the benefits it has on the companies that follow the set guidelines. Lastly, a company that failed to follow the GAAP standards, ultimately causing its downfall will be analyzed.
The History of GAAP
GAAP originated during the time of the Great Depression and crash of the stock market in the year 1929. The United States government implemented laws regarding a standard for accounting practices for public companies. The government does not regulate GAAP, nor does law require it, although the Securities and Exchange Commission (SEC) required all large “publicly traded and regulated companies to follow GAAP for the purpose of financial reporting” (Goodrich). Under the SEC, yearly audits are required for all larger companies to ensure they are abiding by GAAP standards.

The SEC appointed a private organization in 1939 to further develop the G...

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