The rise and fall of organizations is dependent on the business practices adopted by them in a particular business environment. It is often assumed that the prime responsibility of any organization is to promote fair and honest business practices along with being transparent and honest to stakeholders in the short as well as in the long run. In terms of effective business practices, it is judicious to follow the prescribed financial standards and parameters of the recognized bodies. The Financial Accounting Standards Board designs Generally Accepted Accounting Principles for public and private companies. GAAP can be considered as a book of law that is not authorized by the government of the US but is followed religiously by the corporate community of the country.
The guidelines mentioned in the GAAP are generally accepted by all companies and unwillingness to follow these guidelines has severe consequences that might even hamper the growth and development of the culprit organization. Over the years, wide arrays of organizations have tried to dress their financials in a manner that conceals the validity and financial information that might affect the overall decisions of stakeholders. In order to safeguard the interest of stakeholders, GAAP was introduced and has been great success in terms of acceptance and following across the world.
The assignment aims at highlighting the importance of GAAP in context to Capstone Research Project by evaluating organization’s accounting practices and interpretations. Some of the issues pertaining to unfair business practices totally against the GAAP would be discussed in an analytical manner along with identifying the relevance and importance of GAAP in the financial world. The understanding would be presented through a series of example based on text books and journals understanding. Initial Findings After analyzing the accounting practices and interpretations of the organization, it was found that wide arrays of frauds and malpractices were prevailing in the financial system of the organization. Some of the fraudulent activities include: Leases on Technology Assets seems Inflated It needs to be understood that the organization uses technological assets to strengthen the operational activities. Leasing usually has a lower impact on the cash flow considering lower cash outflow at the initial phase. It needs to be mentioned that leases are not treated as assets and thus there is no reason to mention them in the balance sheet. Moreover, even if the leases on technology assets are shown in the balance sheet, it should be shown in a transparent manner without inflating or deflating its value. GAAP Rule- the GAAP rule states that usually operating lease does not affect the balance sheet of the organization as it is not considered as an asset and on the other hand, the expense is not highlighted in the income and expense statement. However, many organizations state leases in the balance sheet and income and expense statement just to dress the statements as per their needs and desires that is totally against the normal business practice (Barry, Jermakowicz, 2007 pp-965). Consequences of the Activity- it may be the case that the independent auditors and financial bodies highlight the fraudulent activity as inflating leasing assets affect the financial ratios and thus misguide the stakeholders in every possible manner. GAAP do not allow such acts and consider this as a serious offence. Measures to Control the Activity- An independent set of auditors should be appointed by the organization working in tandem with the internal auditors to control and manage the transparency of financial statements in an honest manner. The management should take the initiative of appointing independent auditors auditing financial statements at regular interval along with promoting honest and ethical business practi