Table of Contents
- Definition
- Examples
- Frequently Asked Questions
- Related Terms
- References and Further Reading
- Suggested Books
- Quiz
Definition
Big GAAP refers to the generally accepted accounting principles (GAAP) that are applied to large entities. These principles include comprehensive accounting standards set by authoritative bodies such as the Financial Accounting Standards Board (FASB) in the United States. Big GAAP ensures that financial statements of large entities reflect a true and fair view of their financial position, performance, and cash flows, providing essential information to investors, regulators, and other stakeholders. It contrasts with Little GAAP, which caters to the needs of smaller entities.
Examples
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Revenue Recognition: Under Big GAAP, large companies must follow detailed guidelines for recognizing revenue, such as the five-step model outlined by ASC 606.
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Leases: Big GAAP requires lessees of large entities to recognize lease assets and liabilities on the balance sheet as per ASC 842.
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Foreign Currency Transactions: Large multinational corporations applying Big GAAP must adhere to intricate rules for translating foreign currencies and reporting gains and losses in financial statements.
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Impairment of Assets: Big GAAP has detailed requirements for testing and recognizing impairment losses for long-lived assets and goodwill.
Frequently Asked Questions
What is the main difference between Big GAAP and Little GAAP?
Big GAAP applies to large entities and includes comprehensive and detailed accounting standards, while Little GAAP applies to smaller entities and offers simplified rules that are less costly and complex to implement.
Who sets the standards for Big GAAP?
In the United States, the Financial Accounting Standards Board (FASB) is the primary body responsible for establishing and maintaining GAAP standards.
Why is Big GAAP important for large entities?
Big GAAP ensures consistency, reliability, and transparency in the financial reporting of large entities, which helps maintain trust among investors, creditors, and other stakeholders.
Can a small entity choose to follow Big GAAP?
Yes, a small entity can choose to follow Big GAAP if it finds the comprehensive guidelines more suitable for its financial reporting needs or if required by stakeholders.
How often are Big GAAP standards updated?
Big GAAP standards are periodically updated to reflect changes in the economic environment, new business practices, and improvements in accounting practices. These updates are issued by the FASB.
Related Terms
- Generally Accepted Accounting Principles (GAAP): A collection of commonly-followed accounting rules and standards for financial reporting.
- Financial Accounting Standards Board (FASB): The organization responsible for establishing and improving financial accounting and reporting standards in the United States.
- Revenue Recognition: The accounting principle defining the specific conditions under which revenue is recognized.
- ASC 606: The Accounting Standards Codification section that provides guidance for revenue recognition.
- Little GAAP: Simplified accounting standards applied to smaller entities, designed to reduce complexity and cost.
References and Further Reading
- Financial Accounting Standards Board (FASB): FASB Website
- Generally Accepted Accounting Principles (GAAP): Investopedia GAAP Overview
- Revenue Recognition (ASC 606): FASB ASC 606 Overview
- Lease Accounting (ASC 842): FASB ASC 842 Overview
Suggested Books
- “Intermediate Accounting” by Donald E. Kieso, Jerry J. Weygandt, and Terry D. Warfield
- “Financial Accounting: An Introduction to Concepts, Methods, and Uses” by Clyde Stickney and Roman Weil
- “GAAP Guidebook: 2021 Edition” by Steven M. Bragg
- “Accounting Standards: GAAP, IFRS, Ifrs for SMEs, Indian Accounting Standards (Ind AS)” by Kalpesh Ashar
Big GAAP: Fundamentals Quiz
Thank you for exploring the world of comprehensive accounting standards applied to large entities. Continue to sharpen your knowledge with our quizzes and further reading recommendations!
