Answer:
Financial accounting practise is governed by concepts and rules known as generally accepted accounting principles GAAP . To use and interpret financial statements effectively we need to understand these standards. If these standards are not understood implemented or maintained the companies would fail to achieve their targets and lose all the business.
A main purpose of GAAP is to make information in financial statements relevant reliable and comparable. Relevant information affects the decision of its users. Reliable information is trusted by users. Comparable information is helpful in contrasting organizations.
An audit examines whether financial statements are prepared using GAAP. It does not attest to the accuracy of the statements.
State ethics codes requires CPAs who audit financial statement to disclose areas where those statements fail to comply with GAAP. If CPAs fail to report non compliance , they can lose their licenses and subject to criminal action and fines.
