Finance essay topic

Generally Acceptable Accounting Principles (GAAP) and other accounting standards were strictly followed. Accounting policies are essential because they inform the report users concerning the accounting standards, principles, methods and the risks and uncertainties in various financial estimates stated in the report. Therefore management is required to disclose possible trends, events or uncertainties that could have significant impact on the reported financial status. Specific uncertainties surrounding the accounting measurements used in the preparation of the financial statements should be clearly disclosed to help investors in interpreting and analyzing the reported financial results. For example, a company’s financial statements in the annual report could be indicating that the company has recorded profits and fail to disclose to the investors the various risks, uncertainties, and assumptions if any that were considered. This could easily mislead investors into believing that the company is on a profitable path while this may not be true considering the future risks and uncertainties the company may possibly face. The incorporation of accounting policies in the annual report aids the report users and especially investors to make accurate judgment on the reported financial condition and results by linking financial statements to the methods, assumptions and estimates used in their preparation.