CreatedWednesday, July 24,2019 at 9:25 AM
Generally Accepted Accounting Principles (GAAP) remains the most common accounting framework in the US. Errors or omissions in applying GAAP can be costly in a business transaction. Visit our blog to explore the five most common GAAP violations routinely uncovered when working with a new client.
Across the manufacturing sector, there is a great amount of diverse strategies, footprints, and segment approaches as they deal with artificial intelligence augmented reality, and the ever-increasing spread of robotics. From an accounting standpoint, the one thing that often unites these...
Across the manufacturing sector, there is a great amount of diverse strategies, footprints, and segment approaches as they deal with artificial intelligence augmented reality, and the ever-increasing spread of robotics. From an accounting standpoint, the one thing that often unites these companies together is GAAP (Generally Accepted Accounting Principles), which provides the common language for companies to “speak” in regards to their financial performance.
In the United States, GAAP remains the most common accounting framework for the preparation of financial statements. This framework provides a common set of rules in order for readers to properly understand and interpret financial results. GAAP is also the most common framework used when composing contract language for a merger or acquisition transaction.
Errors or omissions in applying GAAP can be costly in a business transaction; impacting credibility with lenders and leading to incorrect decisions. These violations can cause inaccurate reporting for internal and budgeting purposes, as well as a reduced reliance on prepared financial statements for third-party readers. Damaged credibility can furthermore cause a negative impact to the purchase price when going through a sale of the business.
The ability and ease to reach new markets outside of the businesses state of residence continue to propel businesses into new markets. Depending upon the nature and duration of the activity conducted outside of their home state, businesses could face an income tax liability in these states. If the company does not register to do business and does not register to file tax returns in these states, they would not preclude the GAAP financial statements from accruing the tax liability and disclosing it on the financial statements.
Other common tax uncertainties that need analysis include:
The majority of Clayton & McKervey clients are entrepreneurs who have started their own business and watched it succeed and grow. For many of these clients, GAAP reporting can be cumbersome considering the complex guidance and potential limited resources. For this qualified group, FRF for SMEs is a potential non GAAP reporting option.
FRF for SMEs was released in June of 2013 by the American Institute of Certified Public Accountants (AICPA) as an Other Comprehensive Basis of Accounting (OCBOA). This accounting framework is much more focused on cash flows, and relieves eligible companies of the unnecessary accounting burdens required by Fortune 500 companies, and driving GAAP pronouncements. For example, uncertain tax positions, consolidation of certain Variable Interest Entities (VIEs), accounting for unrealized gains and losses in derivative contracts, and goodwill impairment testing would not be required under the FRF for SMEs framework. Changes to GAAP for recent FASB pronouncements, such as accounting for leases and revenue recognition, would also be not applicable under this accounting framework.