Since Management prepares the financial statements of a company, it is possible that the financial statement can be altered to give a company a boost for a specific reason. Businesses that sell their ownership to the public are required to get their financial statements audited by a CPA.
A CPA is a Certified Public Accountant. They are licensed through the State for the same exact reasons lawyers and doctors are. Their license is to protect the public by providing the highest quality of professional service possible in their line of expertise. CPA’s are used because they have no connection with the Business. They hold no Conflict of Interest for the Business.
These Accountants with no strings attached commonly performs an audit, which is evaluating a business’ financial statements, products, accounting systems and records. The main purpose of these audits is to make sure the financial statements have been properly prepared according to the excepted accounting rules. Since Accounting is not a precise science it has room for interpretation according to the GAAP.
This does not mean the reports should contain substantial errors in the financial report, but more likely the report is reliable enough for creditors to look at it. The accountant can only decide when the financial statement conforms to the GAAP guidelines.
In The past creditors, banks, and investors tend to favor an auditor when they are deciding to invest in a company or give loans due to the CPA’s independence. The individualistic audit is an extremely crucial factor in the growth of financial markets internationally. Also, many organizations can directly or indirectly influence a GAAP.
Over the years there has been Organizations to monitor the GAAP. These organizations are the credentials for the continued evolution of the GAAP.
Every business is expected to follow the Generalized Accepted Accounting Practices.