Hi, I’m Thu. Now I’m gonna talk to you about the advantages and disadvantages of GAAP.

ADVANTAGES OF GAAP
Consistency in Reporting
Having so many rules help the company keep up the consistency, especially when making the
financial statements, the consistency in financial statement reporting allows for easier financial
analysis by investors. Comparing a company’s financial statements with those of its
competitors is also easier because the same general accounting principles apply to both
companies. The consistency in preparation and reporting helps to prevent companies from
manipulating accounting records.
Professional Judgment
It allows accounts to use their professional judgment when interpreting and applying the rules
and procedures of GAAP. Besides, it also helps with minimizing the chances of fraud and false
information.
Transparency
One of the strengths of GAAP is that it enables auditors and legislators to better audit financial
statements and other important financial information of public companies. The transparency
provided by GAAP allows investors to place a certain level of confidence in a company’s
financial statements because an investor knows that the reports pass the meticulous
requirements of the SEC.
 It is believed that GAAP accounting is a way to safeguard your company. According to
SMallBussiness.com, “Presenting your information using GAAP also helps to instill
trust in those with an interest in your company”.
DISADVANTAGES OF GAAP
IFRS Compatibility
GAAP treats several major accounting issues involving inventory valuation, revenue
recognition and financial instruments differently than the IFRS. This means that international
companies must prepare costly and cumbersome reconciliation reports that compromise
transparency and clarity.
Rules-based standards
In some areas, such as treatment of derivatives and securitizations, GAAP provides specific
rules instead of guiding principles. This means that GAAP is not sufficiently flexible to
accommodate changes in the marketplace. However, in addressing this issue, the FASB
acknowledges making political compromises to gain acceptance of a rules-based standard.
Asset Valuation
Under GAAP, assets are reported using their historical cost, or initial acquisition cost.
However, “fair value” may be a more accurate representation of an asset’s value. Fair value
is the price that a seller would be willing to sell and a buyer would be willing to pay for the
asset. While this can sometimes be difficult to measure, fair value is arguably a more accurate
representation of the asset’s worth
Private Companies
The FASB intends GAAP to apply to all American companies, big and small, public and
private. While the level of complexity and detail of financial reporting required by GAAP may
be appropriate for large public companies, it is not relevant for small privately held companies.
CONCLUSION
That brings me to the end of my presentation. Let me run over the key points again. That
includes respectively the definition of GAAP, the core GAAP principles, the history and
importance of GAAP and the last, the advantages and disadvantages of GAAP. In conclusion,
the use of methods of accounting is really depend on the nature of the company. Therefore,
we need to have a in-depth sight into GAAP to use this method appropriately. Thank you for
listening. Do you have any questions?