Explaining Basic Accounting Concepts and Business Structures Essay

Explaining Basic Accounting Concepts and Business Structures - Essay Example The Financial Accounting Standards Board (FASB) is responsible for designing a standard, known as â€Å"The Hierarchy of GAAP† which explicitly details the meaning of GAAP. In this regard, the sources of GAAP are as follows: FASB Standards, Interpretations, and Staff Positions; APB Opinions; and AICPA Accounting Research Bulletins. According to Valade (2010, pars. 10 – 12), the general guidelines explaining the rationale and importance of the hierarchy are summed as: â€Å"Level 1 pronouncements are the top level of authority, and take precedence over lower levels of announcements. If an accounting issue is addressed in multiple levels, guidance in the highest level must be followed. Pronouncements within any level carry equal weight†. In this regard, level 1 or category A in Kieso, Weygandt, & Warfield, 2007, 12) is the most authoritative set of professional bodies but â€Å"if an accounting treatment of an event is not specified by Category A pronouncement, then Categories B through D should be investigated† according to the hierarchical order. The most effective accounting information depends on the usefulness of the information for decision making purposes. According to Kieso, Weygandt, & Warfield (2007, 31), the FASB itemized qualitative characteristics according to hierarchy: the primary qualities being relevance and reliability; and the secondary qualities are comparability and consistency. Under relevance, the critical ingredients that must be ingrained are predictive value, feedback value and timeliness. Under reliability of accounting information, the data must be verifiable, must have representational faithfulness and be neutral. The quality of comparability is relevant in according users of accounting information with accurate and comparable basis for identification of similarities and differences in economic events among business enterprises (Kieso, Weygandt, & Warfield (2007, 33).