A friend of yours sent an e-mail asking about generally accepted accounting principles (GAAP). It seems your friend was browsing through Whirlpool Corporation’s recent annual report and she spotted the following statement:

The financial statements have been audited by Ernst & Young LLP, an independent registered public accounting firm, whose report, based upon their audits, expresses the opinion that these financial statements present fairly the consolidated financial position, statements of income and cash flows of Whirlpool and its subsidiaries in accordance with accounting principles generally accepted in the United States.

She asks you what generally accepted accounting principles are, in what ways they are important to independent auditors and external users (investors or creditors), and where they come from.

Required:
  1. What are generally accepted accounting principles (GAAP)?
  2. Why is GAAP important to independent auditors and to external users?
  3. Describe the FASB organization and how it establishes new accounting rules.
  4. Describe the IASB organization and its role in establishing new accounting standards.
  5. How does the Securities and Exchange Commission (SEC) influence the financial reporting practices of U.S. companies?