How to Make Sure Accountants Are Following GAAP

Accoutants are taught GAAP in accounting school.

Following GAAP -- or "generally accepted accounting principles" -- is essential to determine how well a company is doing and is useful for investors and creditors to gauge the financial fitness of a company. According to federal law, all publicly traded companies in the United States must use GAAP. The Securities and Exchange Commission, or SEC, is responsible for ensuring accountants in all publicly traded corporations are using GAAP to record the company’s transactions in the financial statements that must be filed with the SEC.

Instructions

1. Check the SEC’s website. The SEC publishes all reports submitted to the SEC by publicly traded companies and makes them available to view by the public. By viewing a company’s filings, you can check their accounting and look for any discrepancies. In addition, depending on the type of filing and how much information the company provides, you may be able to determine if the company is using GAAP properly.

2. Contact or send a notice to the SEC if you notice any discrepancies on the SEC’s website or if you gain information from another source regarding the company's failure to follow GAAP. In addition, yearly audits of all publicly traded companies are conducted by independent auditors to examine the accounting records and to ensure all accountants are following GAAP.

3. Ask the SEC to perform an investigation into the company’s accounting practices. The SEC will perform an investigation if it suspects that a company has violated any securities laws, like hiding funds or improperly reporting assets by not using GAAP. Unfortunately, unless you have inside access to the company’s books, a full investigation into the company is the only way to know for sure whether the company’s accountants are following GAAP.

References

• Cerritos College: GAAP (Generally Accepted Accounting Principles)
• Securities and Exchange Commission: The Investor's Advocate, How the SEC Protects Investors, Maintains Market Integrity, and Facilitates Capital Formation
• Securities and Exchange Commission: Filings and Forms