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Acc 537

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The FASB is working on a standard, “The Hierarchy of Generally Accepted Accounting Principles,” that defines the meaning of generally accepted accounting principles. This standard identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements. The standard categorizes the major sources of GAAP as follows: FASB Standards, Interpretations, and Staff Positions; APB Opinions; and AICPA Accounting Research Bulletins (Kieso,D.E., pp.12) As stated in FASB Concepts Statement No.2, “the qualities that distinguish better” (more useful) information from “inferior” (less useful) information are primarily the qualities of relevance and reliability, with some other characteristics that those qualities imply (Kieso,D.E., p.11).Good accounting information is described as the primary and secondary qualities which are relevance, reliability, verifiable information, comparability and consistency are all important. Relevance is important since it must have a bearing on a decision. Otherwise the information is useless to the user. Reliable information is verifiable, a faithful representation, and is reasonably free of error and bias. Verifiable information allows varies individuals to reach the same conclusions about the same information. The same conclusion must be met if not the information is not verifiable. Information that is useful, accurate, and tested is what investors trust they are receiving from quality accounting information. The secondary qualities that are also important are comparability and consistency. Comparability is information reported the same way for diverse companies. The information will be easy to compare because the reporting is similar. Companies show consistency when applying the same accounting treatments to related events.

An accrual- based accounting system...

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