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What is the title of GAAP Concept No. 5? What is the purpose of the reporting discussed in this concept? When was this concept last modified?
Should be at least 300 words, formatted and cited in proper APA style with support from at least 2 academic sources.
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Title: GAAP Concept No. 5 - Recognition and Measurement in Financial Statements
The purpose of GAAP Concept No. 5 is to establish the principles for recognizing and measuring items in financial statements. This concept provides the foundation for determining which items should be included in an entity's financial statements and how they should be measured. It also guides preparers and users of financial statements in understanding and applying consistent standards for recognition and measurement.
Recognition refers to the process of including an item in the financial statements, while measurement involves determining the monetary amount to assign to the recognized item. GAAP Concept No. 5 emphasizes that recognition and measurement should be based on reliable and relevant information so that the financial statements present a true and fair view of the entity's financial position and performance.
The Financial Accounting Standards Board (FASB), the governing body that establishes and modifies the Generally Accepted Accounting Principles (GAAP), last modified GAAP Concept No. 5 in January 2010. This modification incorporated several improvements to the original concept, such as providing clarification on the criteria for an item's recognition and measurement and further guidance on the use of estimates and assumptions in financial reporting.
One academic source that provides valuable insights into GAAP Concept No. 5 is a research article by Jinyoung Kim and Paul Zarowin titled "Recognition versus Disclosure: Evidence from Fair Value Measurement" (Kim & Zarowin, 2011). The authors analyze the effect of recognition and measurement choices on financial reporting quality, focusing on fair value measurements. They highlight the importance of appropriate recognition and measurement practices in enhancing the usefulness and reliability of financial statements.
Another academic source that contributes to the understanding of GAAP Concept No. 5 is a textbook by Paul M. Fischer, William J. Taylor, and Rita H. Cheng titled "Managerial Accounting" (Fischer, Taylor, & Cheng, 2017). This textbook provides comprehensive coverage of recognition and measurement principles, explaining their importance in managerial decision-making and financial statement analysis.
In conclusion, GAAP Concept No. 5 sets forth the principles for recognition and measurement in financial statements. Its purpose is to ensure that items included in financial statements are based on reliable and relevant information, providing a true and fair view of an entity's financial position and performance. The concept was last modified by the FASB in January 2010. Academic sources such as the research article by Kim and Zarowin as well as the textbook by Fischer, Taylor, and Cheng provide additional insights into the significance and application of GAAP Concept No. 5 in financial reporting.
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